A slew of negative data emerged this week, sending share markets tumbling and raising fears of a global recession. Geopolitical issues are adding to the risks: Brexit in the UK, ongoing protests by pro-democracy protestors in Hong Kong, tensions with Iran and political uncertainty in Italy and Argentina are all contributing to the febrile atmosphere.
In China, worrying data showed manufacturing production falling to a 17-year low in July. The National Bureau of Statistics reported that industrial output increased by 4.8% compared to a year earlier, a slowdown from 6.3% growth in June and below analysts’ expectations of 5.8%. Furthermore, retail sales in China grew 7.6% in July, lower than the 9.8% figure of June and below forecasts of 8.6%. The figures suggest consumers are struggling with falling incomes and household wealth as Chinese inflation is slowly rising, while local government infrastructure spending intended to boost the economy has not yet had an impact. However, analysts cautioned that the data is unreliable on a monthly basis and the picture could improve in the coming months – investors are expecting a stimulus package in China to encourage growth.
Closer to home, economic growth across the eurozone slowed in the second quarter, according to data from Eurostat. GDP for the bloc fell to 0.2%, down from 0.4% in the first quarter, with Germany, Italy, Spain and France all contributing to the poor performance. Germany’s economy shrank in the second quarter due mainly to falling exports. Its economy contracted by 0.1% in the three months to June, compared to 0.4% growth in the first three months of the year.
Meanwhile in the UK, the employment market remained relatively strong although the unemployment rate ticked up slightly in June to 3.9%, according to the Office for National Statistics (ONS). Analysts said that the labour market could be at a turning point, with unemployment no longer falling and job vacancies no longer rising as economic activity is slowing. Last week it emerged that the UK economy contracted in the second quarter.
However, wage growth hit its highest level in 11 years. Average weekly earnings, excluding bonuses, rose by 3.9% in the three months to June, up from 3.6% in the previous three months. After adjusting for inflation, regular pay increased by 1.9%. But Matt Hughes, the ONS deputy head of labour market statistics, cautioned: "Excluding bonuses, real wages are growing at their fastest in nearly four years, but pay levels still have not returned to their pre-downturn peak”.
On Wednesday the ONS announced that UK inflation has jumped to 2.1% in July from 2% in June. Analysts had expected the inflation rate to drop to 1.9%, but increases in the prices of toys, computer games, clothing and hotels boosted the inflation rate to above the 2% target set by the Bank of England. Many economists say that inflation could stay above target in the coming months as Brexit uncertainties weaken the pound and strong wage growth boosts spending. Indeed, according to data from the ONS retail sales in the UK rose unexpectedly in July, helped by strong growth in online shopping. The volume of sales rose by 0.2% in July compared to June, with online sales rising by 6.9% compared to the previous month, the strongest growth in three years.
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