The Italian referendum and what else to look out for in the economy this week

Keep an eye out for how the economic forecasts for 2017 are shaping up, PMIs for manufacturing, Eurozone unemployment figures, social change in Britain and how markets react to the Italian referendum 

Hamish McRae
Sunday 27 November 2016 14:05
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On Thursday we will have the Eurozone unemployment figures
On Thursday we will have the Eurozone unemployment figures

Is everyone too gloomy about the world economy, and indeed the British one too? After a tumultuous week, with the US coming to terms with a shift in economic policy (and much more) and the UK counting the potential cost of Brexit, this should be a week for reflection. Second thoughts are usually better than first ones.

As far as the UK is concerned, the most interesting thing to look for will be how the economic forecasts for 2017 are shaping up. The official view, that of both the Bank of England and the Office for Budget Responsibility, is that growth will be around 1.4 per cent. The OBR took some stick for that last week, unfairly because the whole point of having an independent office is that it should be independent of political pressure, and it was doing just that. In any case that forecast was at the top end of the present expected scale.

The question now is whether other forecasters will start to revise their forecasts upwards, given the loosening of policy in the US (which should, in the short term, boost growth there). At the margin that should benefit the UK. A bigger influence, however, will be a more general rethinking of the behaviour of UK consumers, which have kept the economy growing solidly though the second half of this year. If they keep going next year, maybe growth forecasts should be revised up for 2017, just as they have for 2016. We should start to see the new private sector forecasts for 2017 starting to come through in the next few days.

Next, there are some purchasing managers’ indices or PMIs, coming out this week. These, you will remember, give an indication of the optimism/pessimism of the business community and hence of future growth. On Thursday we get the UK ones for manufacturing and on Friday for construction. We have to wait until the following Monday for the all-important services sector. Expect a gradual, cautious recovery. But – more important – on Thursday we get world-wide PMIs for manufacturing. That will tell us about the world, which is of course matters vastly more. Global recession next year? Not if global PMIs remain positive.

Third, also on Thursday, come the Eurozone unemployment figures. These vary greatly across the region but the sad truth is that since August 2009 there has been only one month (April 2010) when unemployment has dipped below 10 per cent. They may dip below this week. Unemployment is a lagging indicator, but given the modest but continuing recovery in the Eurozone, this will be taken as a sign of welcome confidence.

There will also be a huge amount of new information about social change in Britain coming from the Office for National Statistics. On Tuesday we learn about changes in life expectancy in different parts of the UK, on births by age of mother and father, as well as activity in the low carbon economy. On Wednesday, among other info, there will be calculations on the natural stock of the country – how our physical resources are shifting. On Thursday there are new estimates of migration up to 2015. Expect these to attract a lot of attention for obvious reasons. And on Friday there will be statistics on suicides.

Finally, something coming up at the end of the week, next Sunday, the Italian referendum. This matters massively, not so much for the specific issue, to approve constitutional changes, but rather because it is a vote of confidence in the government. Given the difficulties of the Italian economy of near-zero growth over the past 15 years and the weakness of the banking system, this could trigger a strong adverse reaction if the vote turns out to be No.

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