Data will show how UK is performing in Brexit vote aftermath
While Brexit-related concerns continue to dominate the headlines and market attention, it's important not to lose sight of other important issues for the global economy and financial markets. A key aspect in this regard is the continuing struggle of the global economy to generate upward momentum.
The OECD said last month that the world economy remains in a low growth trap. Global growth rose by 3.1 per cent last year, its slowest pace of expansion since the economic crisis of 2008-09, reflecting, in particular, slower growth in emerging economies. Global growth is expected to slow even further this year, with the OECD forecasting GDP to increase by just 2.9 per cent, while it expects only a modest pick up to 3.2 per cent next year.
While slower growth in emerging economies was a key factor in last year's lacklustre performance, in the first half of this year, there has been a marked slowing of growth in some of the main advanced economies. This has been most notable in the US, the world's largest economy. Meantime, growth has also moderated in both the eurozone and UK economies this year, while the expansion in Japan remains anaemic.
From a US perspective, the disappointing performance in the opening half of the year was due to a combination of weak business investment, a poor external trade performance and slower inventory accumulation.
So the release this week of the first reading of US third quarter GDP will warrant attention. Data have suggested that consumer spending slowed, following Q2's strong performance.
However, net export growth looks to have increased, while the notable decline in capital spending in the energy sector should have turned positive. Meantime, industrial production recorded modest growth in Q3, after declining in the previous three quarters. Overall, markets are expecting GDP to have risen by an annualised rate of 2.7 per cent in Q3, which would represent its best performance since Q3 2014.
The UK calendar also includes third quarter GDP data, which will be assessed for signs of Brexit-related impact. So far the data has not shown much noticeable impact from the referendum outcome. The pace of growth in retail sales increased, though industrial production and construction data indicate some possible contraction in these sectors.
Second quarter GDP benefitted from a strong increase in inventories, which accounted for more than half of the rise in output. This is unlikely to be repeated. Thus, the market consensus is for a slowdown in quarterly growth to 0.3 per cent in Q3, from 0.7 per cent. The pace of year-on-year growth is anticipated to have remained at 2.1 per cent.
Third quarter GDP is on the agenda in the eurozone as well, with national statistics from France (+0.3 per cent quarter-on-quarter) and Spain (+0.7 per cent) set for release. Although, the key eurozone release of the week comes in the form of the flash October PMIs. The composite index may have edged up slightly at the start of the fourth quarter, while still pointing to only modest growth.