Will US stimulus payments lead to a surge in retail spending?

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Will US stimulus payments lead to a surge in retail spending?

US retail spending fell in February as bad weather swept the country and government aid waned, sharply reversing its robust recovery at the beginning of the year. On Thursday, investors will find out whether another round of stimulus payments that reached American households in March sent sales jumping again.

Analysts are confident that will be the case. Economists surveyed by Bloomberg are expecting a 5.9 per cent rise in month-on-month retail sales, with all respondents anticipating at least a 3.5 per cent increase. Bank of America has the most bullish outlook of Wall Street banks, pencilling in an 11.5 per cent surge. 

“People seem increasingly comfortable starting to resume, quote-unquote, normal shopping behaviours,” said Mari Shor, a senior analyst at Columbia Threadneedle. “Every data point we see is making us more and more bullish.”

The US Commerce Department data on the value of overall retail and food services sales, adjusted for seasonal variations and holidays, has whipsawed during the pandemic, often in tandem with authorities paying out aid and the easing or tightening of social curbs.

In February, sales volumes fell 3 per cent, as a “polar vortex” shut down parts of the country and American households waited for their follow-on stimulus payments. The decline followed a strong consumer showing in January, when retail sales were up by a revised 7.6 per cent from December after several sluggish months. 

The retail data are an important gauge for the strength of the country’s consumers, whose spending makes up about two-thirds of total US economic output. Aziza Kasumov

Is the outlook for Germany’s economy set to brighten?

Germany’s economic prospects have been deteriorating since the start of the year as a persistently high number of coronavirus infections and a slow vaccine rollout have led to an extended lockdown.

Economists polled by Consensus Economics expect the nation’s gross domestic product to expand 3.3 per cent this year, down from the 3.7 per cent they forecast in January — and an even bigger downgrade compared with their expectations at the end of last year.

Services in Germany have been the hardest hit by the lockdowns, with the reversal of the value added tax reduction at the start of this year also having hit consumption.

However, the closely watched Zew survey of financial market experts, out on Tuesday, is expected to show a strengthening in their assessment of the German economy to 79.5 in April from 76 in the previous month, according to analysts polled by Bloomberg.

Longer term, the outlook for the German economy is “mixed”, said Carsten Brzeski, global head of macro for ING Research.

In contrast to services, the nation’s manufacturing and exports were “booming”, he said. Demand from the US and Asia, mainly China, remained strong. The $1.9tn US fiscal stimulus and the expected recovery of UK-EU trade after the decline in January, already seen in February’s data, should also support activity at German factories.

Moreover, with the German export-led manufacturing sector accounting for a larger share of the economy than in peer countries, “the fact that other regions in the world have a much better management of the vaccinations pays off for the German economy”, said Brzeski. Valentina Romei

How strongly will China’s economy rebound?

Early 2020 brought unexpectedly low growth for China, but the reverse is likely to be the case a year on.

Economists polled by Bloomberg expect a report released on Friday to show the world’s biggest emerging market economy expanded 18.6 per cent in the first quarter of this year compared with the same period in 2020.

The sharp increase is largely a result of weak activity at the beginning of last year, when the nation’s economy shrank for the first time in four decades, but it also reflects China’s far speedier recovery from the effects of the coronavirus pandemic compared with other major economies.

By the fourth quarter of last year, its economy, fuelled by rapid industrial expansion, booming exports and low levels of infections, was growing at a faster pace than before the pandemic emerged.

Now, the focus in China has shifted to the prospect of rate rises because of concerns about overheating in parts of its economy, especially the property sector. Investors will be closely watching this week’s gross domestic product data release for any hints of when policy might shift.

“China’s spectacular rebound from Covid-19 has led policymakers to focus on policy normalisation and regulatory oversight on lending, real estate, and tech, leading to questions about whether this could weigh on growth,” noted economists at Morgan Stanley last week.

However, they suggested that policy normalisation was “unlikely to torpedo the growth cycle”, adding that policymakers were “looking for stable debt ratios rather than aggressive deleveraging”. Thomas Hale

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