Five things to look out for in the global economy this week

In the coming week people will be focused on whether Donald Trump's trip to Saudi Arabia will affect oil prices, and what the release of the UK's revised GDP numbers and data on migration show in the run-up to the general election

One of the key economic questions this week is whether Trump's trip to Saudi Arabia will affect oil prices (AP Photo/Evan Vucci)

This will be a week when we will learn much more as to whether fears about US political instability will undermine financial confidence. There have been plenty of concerns about the new administration’s ability to get things done, but until last week investors were content to give President Trump the benefit of the doubt. Shares and the dollar have both climbed – shares massively – since last November. Then investors got frightened: markets wobbled, the dollar dropped. So will they recover their nerve?

The link between political shocks and economic shocks has always been tenuous. Only quite huge upheavals have lasting financial or economic impact. Thus the oil shocks of the 1970s did lead to massive global fallout, and the recent euro crisis did considerable damage to the European economy. Both pushed several major countries into recession. But more middleweight blows, such as Russia’s annexing the Crimea or the so-called “Arab spring”, had little effect. More important is the general appetite for risk among investors and that is driven by emotion as much as reason.

So the question now is whether that risk appetite is waning. Will people want to play safe, pocketing the gains they have made in recent months? Last week saw the first real crack in confidence, as investors started to wonder whether the political storm around the President would mean that key policies such as tax reform would be stalled. Let’s see how they react this week.

The new President’s first foreign trip, to Saudi Arabia, is getting wall-to-wall coverage, but I am more interested in the implications for the oil price. There may be none, but it is powerfully in Saudi interest to hold it above $50 (£38) a barrel, as the state needs that sort of price to fund public spending. Indeed, it ideally needs around $80 (£61) a barrel. Recently the Saudis have been willing to cut production to hold up the price and they have indicated they are prepared, in the context of restraint by other Organization of the Petroleum Exporting Countries (OPEC) members, to cut more. The Trump visit is not about oil but about the US relationship with Saudi Arabia – and with the arch-enemy across the Gulf, Iran. But the oil market matters enormously to the world. At present it is in a Goldilocks balance, not too hot, not too cold. Will it stay?

Here in the UK we cannot escape the impact of UK economic data on the election. This week we get public finance figures on Tuesday, the first of the new financial year. Will they confirm that the budget deficit is still narrowing? We also have revised GDP numbers on Wednesday. Will they confirm the slowdown in growth in the first quarter? But the most-watched numbers come on Thursday, when the ONS published data on both long and short term migration. See the government’s target, maybe more an aspiration, of getting net migration down to below 100,000 per year in this context.

Finally China. We are all looking at Europe, the Middle East and the US. That may be the wrong direction. There may be a big story emerging there, which is whether the slow-down in China is under control – a Goldilocks slowing? – or whether it has become unstable. It is a managed economy, so the warning signals that we instinctively look for are not evident. In any case the data are not reliable. But the economy is clearly cooling and it is in the West’s self-interest that this should happen in a controlled and manageable way.