From UK interest rates to German exports, here are 5 things to look out for in the global economy this week

The financial markets seem to have concluded that the world economy will be alright, that there isn’t too much danger of a trade war, and that the US high-tech sector (with the possible exception of Tesla) will keep driving ahead. Are they right?

The reason for this switch of mood is the mix of unexpectedly good news (such as the strong figures from Apple last week), and bad news that is not quite as bad as anticipated (eg the gloom of German industry and the impasse over Brexit). Here are five things to look for in the news flow of the coming weeks that will help us make a judgement.

First, and most obvious, will be the Bank of England decision (or almost certainly non-decision) over UK interest rates on Thursday. A month ago everyone expected an increase. Now that looks most unlikely, largely because of the poor first quarter GDP figures. Is this just a blip? The thing to look for will not be the vote of the monetary policy committee, but the detail of the analysis in the Inflation report, and in particular any forward-looking judgements. The interesting thing here is that the Bank has been more optimistic than the Office for Budget Responsibility about the economy. Is it still?

However, while it matters to Britons what happens to their mortgage payments, the UK is not significant in the world economy, so more important will be any information about the eurozone slowdown. There is no doubt that the eurozone staged a welcome recovery in the second half of last year. The issue is whether this was principally cyclical or structural. Of course it will be a mixture of both but that balance matters. If mainly cyclical, then the eurozone will be vulnerable to any global slowdown that happens later this year, or more probably in 2019 or 2020. If structural (France is massively important here) then the outlook for Europe is much brighter.

One specific question is how badly hit are German exports by the incipient threats of trade restrictions between the EU and the US. Europe is not in a strong position, and Germany is overly dependent on exports to maintain overall demand. The German current account surplus, 8 per cent of GDP, is not sustainable and the US will take action to curb it. Whether that is a good idea is irrelevant. It is going to happen. So the German business community is rightly worried. It is also, by the way, pessimistic about Brexit, troubling because in many sectors the UK is their second or third largest export market after the US and China.

And China? It is so important to the world economy but the data is opaque. I find the best thing to do, aside from seeing what seasoned China-watchers are saying, is to look at hard data such as commodity imports or electricity consumption, rather than official forecasts. What seems to have happened is that the slowdown of the second half of last year is now over and a recovery is taking place. Thus China’s power output was up 10 per cent year-on-year in the first quarter. I note that Capital Economics thinks that this bounce is largely the result of the lifting of pollution controls that had curbed production last year. If that proves to be correct, expect growth to ease off later this year when they are tightened again. The key thing here to grasp is that the Chinese economy will slow down irrespective of all the trade war stuff. But it is better for the world if it slows in an orderly way and not as a result of trade conflict. Accordingly, any information about the direction of the trade tussle really matters.

Finally, oil also matters. Not as much as it used to, but the oil price is still a good proxy for the strength of the world economy. It has recovered to around $75 a barrel for Brent, a three-year high. Question: does oil go back to $100 a barrel? It won’t in the next week, but you can see a set of circumstances where it could in the next 18 months. Meanwhile, $80 is in sight. Since the US has now become the world’s largest oil producer, a high price is bullish for the US economy – one of the reasons why US interest rates may rise three more times this year.

That leads to a final question: how does the world manage if US interest rates are rising fast but European rates are not rising at all? Will the latter be pulled up? Probably yes. But this is a question for the summer and autumn, not now.