UNCERTAINTY is the buzzword right now in economic and financial market circles in the aftermath of the UK'svote in favour of leaving the EU.
The IMF’s latest World Economic Outlook noted that the Brexit vote "implies a substantial increase in economic, political and institutional uncertainty” and “adds significant uncertainty to an already fragile global recovery”.
It expects the heightened uncertainty to have “negative macroeconomic consequences, especially in advanced European economies” while also noting that it is “very difficult to quantify its potential repercussions”.
Not surprisingly, the IMF’s UK GDP forecasts saw sharp downward revisions. UK growth for 2016 is now projected at 1.7 per cent (from 1.9 per cent) and at 1.3 per cent next year (from 2.2 per cent previously).
This week’s release of UK GDP data for the second quarter of the year will provide a useful update on how the economy performed in the run up to the referendum. The economy is forecast to have grown by 0.5 per cent in Q2 - a slight improvement on the 0.4 per cent increase in the January to March period.
Strong retail sales data in the quarter suggest that consumer spending likely remained the primary driver of growth. But attention is probably already turning to the third quarter after last week’s once off release of flash UK PMI data for July.
Both the manufacturing and services PMI fell into contractionary territory - indicating that the UK economy lost momentum at the start of the third quarter and that it could potentially contract in the third quarter.
In the eurozone, GDP is forecast to have grown by 0.3 per cent in the second quarter - a slower pace than the 0.6 per cent growth in the previous three months. Data in the quarter suggested weaker consumer spending, as well as a decline in industrial output. Trade data, though, were more encouraging.
A busy eurozone calendar includes some other important releases. Inflation is forecast to have remained at 0.1 per cent in July, while the unemployment rate looks set to hold at 10.1 per cent in June. We get some timelier macro updates in the form of the EC sentiment indices and German Ifo for July. They are anticipated to mirror last week’s softer PMI data.
Elsewhere, in the US, we also get GDP data for the second quarter. Growth is expected to have risen to 2.6 per cent on an annualised basis, an improvement on Q1’s soft 1.1 per cent increase.
