Week Ahead: The economic outlook for the EU, US CPI release & UK GDP unveiled

In the week ahead, the EU reveals what could be a less-than-optimistic economic forecast. The UK is also releasing GDP figures – is a double dip recession on its way? Over in the US, CPI data is released which could point towards inflation, and earnings season continues on Wall Street with Disney and other large caps reporting in. 

US CPI – is inflation going to ramp up? 

Are the dogs of inflation starting to bark? We’ll find out in the US this week as CPI data for January is reported. 

The Labor Department reported the CPI rose 0.4% in December, following a 0.2% rise in November. Consumer prices may have risen, but the key driver here was gasoline. Gas prices jumped 8.4% in the last CPI review period, account for 60% of the index’s overall growth. Food, on the other hand, rose 0.4%. 

Excluding volatile food and energy prices, CPI growth in December was at 0.1%, kept in check by a decrease in the price of used vehicles, as well as drops in airfares, health care costs, and recreation activities. 

Last month’s CPI readings were in line with economists’ expectations. Overall, the CPI rose 1.4% in 2020, which is the smallest yearly gain since 2015, representing a drop from 2.3% in 2019. 

There are mixed outlooks going forward. On one hand, over $has been pumped into the economy via stimulus packages so far, and President Biden has plans to add an extra $1.9 trillion. Whether that full figure makes it through Congress, we don’t know yet, but either way more stimulus is probably on its way, which could cause inflation to breach targets. 

On the other, price pressures may stay more benign.  Some 19 million Americans are on unemployment benefits. Stress in the labour market could also curbing wage growth and increasing rental vacancy rates are could restrain rental inflation too. 

A not so bright EU economic forecast 

Europe could be about to head into a double dip recession. That’s the stark headline as the EU shares its economic forecast in the week ahead.  

The last quarter of 2020 pulled back any gains made that year, with the EU’s overall economy retracting 0.5% in 2020’s last 3 months. It’s the same story we’ve seen across the year: lockdown loosens, GDP goes up, but virus cases surge; lockdown tightens, GDP shrinks, virus cases still increase. 

The EU is facing particular difficulty in its vaccine programme, although coordinating efforts across the bloc’s many constituent members requires almost Olympian effort. So far, it doesn’t look like it is paying off. Difficulty in sourcing vaccine supplies is one aspect of the EU’s vaccination woes, in particular the recent EU/UK spat over exports of Oxford’s AstraZeneca vaccine.  

The euro has fallen against both the dollar and pound too, with a euro now worth about 88p at the time of writing, and roughly $1.20 – nine-month lows for the currency, and not a great indicator of a healthy economy. 

Will Europe double dip? It’s possible. Basically, the bloc needs to pick up the pace when it comes to vaccination and get people out and about again. Stimulus will play a key role here too, as the first cash from its €750bn package should start reaching the EU’s economy in 2021’s first half. A reason for hope? Maybe, but for now the forecast isn’t particularly bright. 

UK GDP – will the UK be double dipping? 

The UK releases its latest quarterly GDP data this week. Q3 2020 showed rapid 16% growth, according to headline figures published by the House of Commons Library, but that was still down 8.6% compared with the previous year. Will we see a contract or continued growth in the upcoming quarter’s figures? 

The Bank of England’s report from 4th February is actually better than previously feared. UK GDP is expected to have risen a little in the last quarter, to a level roughly 8% lower than Q4 2019.  

This is a little surprising. Most of the UK returned to tough lockdown restrictions during November, with non-essential shops opening. While some were let open again in the run up to Christmas, and businesses of all sorts adapting to changing conditions, it may still not be enough to avoid recession. That said, it was spending season as Christmas and Black Friday fall in the last quarter. Perhaps they‘ve played a role in keeping the UK economy afloat. 

Recession will be still be on everyone’s lips watching Q4’s official GDP figures, as they’ll be a barometer for what’s going to happen in Q1 2021. Lockdown measures are tight across the UK, and non-essential businesses remain shuttered for the foreseeable. Goldman Sachs has reconfigured its UK Q1 2021 outlook for 1.5% growth.  

A mixed outlook then, but there is a small sliver of sunlight through the cloud. The UK’s vaccine rollout has been one of the most successful in the world, with evidence suggesting the spread of the virus is slowing with vaccine uptake. But will businesses remain closed, GDP growth seems out of reach for the UK economy going forward. We’ll know more when official GDP figures are released. 

Earnings season rolls on 

Plenty of large caps are yet to report their latest earnings as earnings season rolls on  Wall Street.  

Disney looks one of the most interesting companies to watch this quarter. The House of Mouse has its fingers in multiple deep pies, but with key revenue streams falling off, like its theme parks and resorts, and of course cinema, it will have to prop those up through gains in other business areas. 

It looks like its working already. Disney+, its own in-house streaming service, has already obliterated subscription forecasts. In April 2020, Disney was targeting 60-90m subscribers by 2024. As of February 2021, subscription numbers had already hit 87m. Now commentators put future subscriber levels in the 250m range.  

As well as its own properties established and developed over decades, Disney’s acquisitions of Marvel and Star Wars basically put two of the most popular franchises in the hands of a company already used to owning, marketing, and creating obscenely popular entertainment properties. Basically, limiting access to both show’s films and TV series together on a single platform is exceptionally shrewd. 

So, while earning may have slumped in physical media, digital output could help propel Walt Disney to a strong quarter. 

Disney is now fourth on Fortune’s list of the World’s Most Admired Companies and first overall for entertainment. Its brand recognition is already immense, but, according to Fortune, its business operations are a textbook case of identifying how and where to succeed.   

A look at some of the key large caps reporting this week can be found below. 

Key economic data 

Earnings data