Nicholas Glinsman | August 21st, 2022


Europeans returning from their summer breaks will find a more fragile economy that risks buckling under the threats of energy rationing, record inflation and tighter monetary policy.

Purchasing managers’ indexes due Tuesday will likely show private-sector output shrinking for a second month, adding to signs that a recession in the 19-nation euro zone is now more likely than not. Business confidence gauges from Germany, France and Italy will probably confirm that direction.

Germany, Europe’s largest economy, has emerged as the region’s weak spot, with its outsized industrial base suffering disproportionately from surging energy costs and a persistent shortage of supplies. Meanwhile, services aren’t seeing the same kind of tourism boom that’s tiding over countries around the Mediterranean as vacation travel picks up post-Covid. 

An update on Germany’s second-quarter performance on Thursday will reveal whether the negligible contraction initially reported, small enough to be rounded away, will be revised into a bigger one, or whether consumer spending was strong enough to avert a decline in output — for now.

Data in the coming week will be key ingredients for discussions on where monetary policy is headed after the European Central Bank raised rates by half a point in July and signaled “further normalization” in September without pre-committing on the size. The ECB’s next meeting is less than three weeks away, and most policy makers have yet to express their preferences.

An account of the July meeting due on Thursday may offer some insight, and about half of the ECB’s 25 rate setters — including Executive Board member Isabel Schnabel and Bundesbank chief Joachim Nagel — will get a chance to share their views during the Kansas City Fed’s annual Economic Policy Symposium in Jackson Hole, Wyoming. 

ECB President Christine Lagarde won’t make the trip to the Grand Tetons this year. But her comments following the July decision, along with another pickup in inflation to just under 9% and expectations that price pressures will increase further, suggest she’s leaning toward a bigger move: “We have to bring inflation down to 2% in the medium-term,” she said. “It’s time to deliver.”

Central bankers from around the world are also headed to Jackson Hole, with Federal Reserve Chair Jerome Powell scheduled to speak on Friday. Before that, Chinese banks will likely trim their benchmark loan prime rates for the first time in months, while monetary policy authorities in Israel, Iceland, South Korea and Botswana are among those expected to hike rates. 


Federal Reserve Chair Jerome Powell will attempt to steady messaging on the policy path again in the coming week. Markets interpreted Powell’s post-meeting press conference in July as dovish, and many saw a similar tilt in the ensuing minutes.

Powell will likely double down at his Jackson Hole appearance (Friday) and the September meeting on the need to tame inflation and dissuade markets from the notion that the Fed made a dovish pivot. Powell’s message will amplify other Fed officials’ rhetoric that they are far from done and expect him to lean hawkish at the symposium in Wyoming.

Powell must make clear that, even if the Fed eases interest-rate increases, that would not necessarily indicate a lower peak rate or a quick shift to cuts. The latest data on industrial production, retail sales and jobless claims suggest the economy still has enough momentum to sustain higher rates. It is unlikely the Fed chair will discuss the near-term rate path. The jobs and CPI reports for August, released ahead of the September FOMC, meeting will be more informative on the size of the next hike.

Economic data in the coming week include the government’s July personal income and spending report, which will help shape third-quarter growth estimates. Inflation-adjusted outlays on goods and services are projected to have firmed a bit in July after soft readings the previous two months. 

The report’s personal consumption expenditures price index, which the Fed uses for its inflation target, is forecast to settle back after energy costs plunged. Other data include revised second-quarter gross domestic product, durable goods orders and new home sales for July, and the August S&P Global manufacturing and services surveys.


China’s biggest banks on Monday are likely to lower the interest rate they charge their best customers, after the People’s Bank of China cut borrowing costs on Aug. 15. 

Meanwhile, coronavirus infections have surged to a three-month high, with tourist destinations worst hit. The current wave of infections is testing Beijing’s Covid Zero policy as the government seeks to strike a balance between containing the virus and maintaining economic growth.

Extreme high temperatures and low precipitation since July create more economic challenges for China: The province of Sichuan activated its highest emergency response on Sunday to deal with “extremely outstanding” power supply deficiencies, adding to manufacturers’ woes in the region as they shut down factories.

Indonesia’s central bank may retain its outlier status in a world where central banks have been delivering large hikes, though more economists see the potential for an increase at Tuesday’s meeting after the nation’s inflation accelerated in July. 

The Bank of Korea meets Thursday amid growing fears that further half-percentage hikes may pop a household debt bubble. Those concerns could prompt Governor Rhee Chang-yong to revert to a 25 basis point move before he jets off to Jackson Hole. The BOK decision follows the latest preliminary export figures earlier in the week that will offer a pulse check of global trade so far in August. 

In Japan, board member Toyoaki Nakamura will deliver the BOJ’s latest view on the economy and prices in a speech on Thursday ahead of Tokyo inflation numbers Friday.

Pakistan’s central bank, which has hiked rates by 525 basis points this year, is expected to keep them steady when policy makers meet.


Not mentioned specifically in this week’s opening summary is the German Ifo survey on Thursday, which has fallen notably since the onset of war in Ukraine and is below its long-term average. That indicates a deteriorating outlook. Soaring energy costs and ongoing supply-chain interruptions point to slower growth and elevated inflation. It should not be forgotten that the Ifo survey is usually one of the best indicators of Germany’s growth.

Elsewhere in western Europe, it’s a fairly quiet week, with UK PMI readings scheduled for Tuesday. 

In the east, data due on Wednesday will likely show that Russian industrial production slumped in July at the fastest rate since the start of President Vladimir Putin’s war in Ukraine, as energy output falls amid a standoff with the rest of the continent.

Iceland’s central bank is expected to raise its key rate by 75 basis points to 5.5%, keeping it ahead of developed-nation peers in tightening as a housing boom there keeps fueling price growth.

The Bank of Israel is set to increase its benchmark by another half point after annual inflation and economic growth topped all forecasts, with price gains accelerating to the quickest since October 2008. 

Botswana may also hike again to curb average inflation that’s at the highest level in more than a decade. The International Monetary Fund said in July that the central bank will need to continue raising rates to bring price growth back within the 3% to 6% target range.

South African data will probably show that inflation in July remained above the 6% top of the central bank’s target range for a third straight month, fuelled by gasoline prices. The institution, which is scheduled to meet next on Sept. 22, told lawmakers in a recent presentation that a return to the target band was “likely to be sluggish,” with risks tilted to the upside.


When Banxico hiked its key rate to a record 8.5% on Aug. 11, policy makers failed in the post-decision statement to provide forward guidance. Mexico watchers will pore over the meeting minutes posted midweek.

Mexico also reports final second-quarter GDP data, June’s economic activity index, and the mid-month reading of consumer prices, which economists see hitting a fresh 21-year high. Banco de Mexico Deputy Governor Gerardo Esquivel on Wednesday said inflation will peak in August or September.

In Peru, look for a modest increase in second-quarter output as a new round of pension savings withdrawals in June backstopped consumers.

The surprising pick-up in Argentina’s May GDP-proxy data likely helped to buoy June’s results, but headwinds abound and many economists forecast a recession in the second half.

In Paraguay, the central bank meets to consider a 13th straight hike from 8%, with inflation running slightly faster than 11%.

Brazil posts current account and foreign direct investment results as well as the mid-month reading of it benchmark inflation index. Early estimates see the IPCA-15 index coming in at just over 10%, down from 11.39% in July. It’s being slowed largely by government price and tax cuts.