Last week saw a number of reports highlighting the different stages of economic recovery underway in countries around the world. Of the most prominent the eurozone exited recession, with growth of 0.4 per cent seen in Q3 which was less than expected. With less of an impetus coming from government programs in the future, however, the growth rate can be expected to stay relatively modest in Q4 as well, meaning that the ECB will remain comfortably in stimulus mode well into 2010.

Chinese and Indian data continues to print positively. Chinese retail sales and industrial production both expanded strongly at the start of Q4 (16.2 per cent y/y and 16.1 per cent y/y respectively), and exports declined at 13.8 per cent y/y for the smallest drop of the year. Despite this the People’s Bank of China (PBOC) said that will stick to the "moderately easy" monetary policy and keep liquidity at reasonable levels.  It also hinted at greater flexibility in the exchange rate, which suggests that the government may have to eventually yield to political pressure from the US for yuan appreciation – a topical issue in a week that sees President Obama visit China.

India’s strong industrial production growth continued in September, rising by 9.1 per cent y/y, and fuelling the debate about stimulus withdrawal. Japan, however, slipped back into deflation as measured by the corporate goods price index, but overnight saw Japan Q3 GDP exceed expectations at +1.2 per cent q/q, leaving Q3 GDP y/y contraction narrowing to -4.5 per cent from -7.0 per cent in Q2.  

Employment data continued to mark out Australia as ahead of the pack in the developed world with jobs growth improving further in October (24,500), despite a rise back in the unemployment rate (to 5.8 per cent).

In the UK, while the Bank of England’s Inflation Report was quite positive in terms of its growth and inflation outlooks, the tone was notably still very cautious, almost gloomy.

The US data which saw the week out was also relatively subdued, with the US trade deficit widening to $36.5 billion in September, up from $30.7 billion in August.  Meanwhile the University of Michigan's Index of Consumer Sentiment sank to 66.0 in its preliminary reading for November, down from 70.6 in October. The decline reflected not only more pessimistic views of current conditions, but also a pronounced drop in consumers' outlook.

This week’s principal event risk revolves around retail sales in both the US and the UK. The question in the US is whether the reversal in consumer confidence spells downside risk to actual consumption. If so, then the debate about further stimulus measures is likely to pick-up further. CPI may also be of interest this week as inflation was one of the indicators mentioned in the last FOMC statement that could determine when the Fed starts to reverse its monetary policy stimulus. From this perspective capacity utilisation data, also released this week, could also be a focus as this was also referenced by the Fed and does show a relatively tight correlation with the Fed funds rate historically.

In the UK the authorities are faced with problems on a number of fronts, with retail sales, inflation data and public sector borrowing figures all capable of dampening confidence about the recovery and complicating the policy response of the authorities. The minutes of the November MPC will show the extent of any disagreements within the Bank of England over the possible extension of quantitative easing measures.

In this region mixed messages are also being seen. The UAE registered strong gains in consumer confidence in Q309 according to a recent Nielsen Consumer Confidence Survey, rising by nine points to 102. However, elsewhere Saudi Arabia saw inflation fall further to 3.5 per cent y/y in October from 4.4 per cent in September, implying that actual activity in the region’s largest economy remains very subdued. Inflation in Oman also fell back and credit growth in Qatar also edged lower, highlighting the breadth of the downturn across the GCC.

Last week confidence-boosting statements made by Sheikh Mohammed allowed the UAE bourses to beat the week's downward trend in the Gulf region as a whole, but markets overall remain sceptical about the outlook globally. In the coming week the Kuwait Stock Exchange may come under renewed downward pressure as some listed companies may choose to delay releasing their weak Q3 results.

Already Burgan Bank published Q3 results showing a 91 per cent fall in profits, a fall that might be repeated elsewhere. If so then Kuwait’s record as one of the main underperforming markets of the year should remain intact. 

Tim Fox is Chief Economist at Emirates NBD Global Markets & Treasury.