* U.S. Q2 GDP might give Fed more confidence to taper
* IFO expected to deliver more good news for Germany
* Positive data expected from Japan and China
By Alan Wheatley, Global Economics Correspondent
LONDON, Aug 25 More bricks in the global
recovery wall are likely to slot into place in a week that could
also yield more clues as to when the Federal Reserve will start
unwinding its exceptional monetary stimulus.
Updated gross domestic product figures are usually brushed
aside as backward-looking.
But with the timetable for Fed 'tapering' dependent on the
flow of data, any upward revision to U.S. second-quarter GDP
growth can only strengthen the hand of those who expect the
central bank to move as early as its Sept. 17/18 policy meeting.
Economists polled by Reuters reckon GDP expanded at a 2.2
percent clip between April and June, up from an initial estimate
of 1.7 percent thanks to a bigger contribution from net exports.
The U.S. economy is far from firing on all cylinders. But
last week home sales for July jumped to a three-year high and
the four-week moving average for new jobless claims fell to the
lowest level in nearly six years.
Sam Bullard, an economist with Wells Fargo in Charlotte,
North Carolina, said he still thought, after the minutes of
July's policy-making Federal Open Market Committee (FOMC), that
Fed Chairman Ben Bernanke would start to ease off next month.
"At least on the economic data front, the numbers are
gradually improving and the plan that Bernanke laid out at the
June FOMC meeting for potential tapering in the second half of
this year still looks as though it's on pace. We're still in
that September camp," Bullard said.
HEADWINDS AND TAILWINDS
To be sure, the Fed has to take account of plenty of
Bullard cited the risk of a U.S. government shutdown due to
wrangling over next year's budget. Congress also needs to raise
the federal debt ceiling by November, raising the spectre of a
repeat of the brinkmanship that rocked markets two years ago.
"If the Fed goes for September, they have to have some faith
that there'll be some resolution to these federal fiscal issues
and that they won't throw their economic growth projections off
course," Bullard said. "It's not a slam dunk."
Figures this week are also likely to show U.S. inflation
according to the Fed's preferred measure, the core deflator for
personal consumption expenditure, remained stuck last month near
June's uncomfortably low annual rate of 1.2 percent.
And financial conditions have tightened since the Fed met in
July, with mortgage rates yanked higher by rising bond yields.
But Jerry Webman, chief economist with OppenheimerFunds,
said the Fed had talked itself into a position where it would
arouse suspicions if it did not start buying fewer bonds in
September, say $75 billion a month instead of $85 billion.
"At the moment, expect tapering to begin in the middle of
September; don't expect it to be terribly disruptive to
financial markets," New York-based Webman said.
JAPAN AND GERMANY LOOKING UP
Statistics this week from developed economies should partly
allay another concern voiced in the Fed minutes - that America's
export markets were sluggish.
Japan, responding to aggressive monetary stimulus and a
weaker yen, is forecast to report a rebound in industrial output
and household spending alongside an acceleration in consumer
price inflation - just as the Bank of Japan wishes.
In Germany, economists are pencilling in a rise in the IFO
business climate index for August to 107.0 from 106.2 as well as
a solid rise in retail sales and a dip in the number of jobless.
After data on Friday showed Germany's 0.7 percent rise in
second-quarter GDP was driven by domestic demand, including a
rebound in business spending, Thomas Harjes with Barclays in
Frankfurt said he expected Europe's largest economy to maintain
its underlying 2 percent annualised growth rate through 2014.
"Corporate capital investment should continue a moderate
recovery unless the euro area crisis intensifies again, or
global demand, especially from China, is significantly weaker
than expected," Harjes said in a note.
The data flow from China has in fact improved lately, and
economists expect a modest rise in the official manufacturing
purchasing managers' index, due on Sept. 1, to 50.5 from 50.3.
That would be welcome news to China's emerging-market
trading partners. The currencies of India, Brazil and Indonesia
among others have tumbled due to growth worries and a looming
end to ever more cheap dollars printed by the Fed - opening up a
negative feedback loop for Bernanke to bear in mind.
Derry Pickford, a macro analyst with Ashburton in London,
said investors might be underestimating the potential impact of
emerging-market woes on U.S. and European profitability.
"The fact that country-specific emerging market shocks have
coincided with tapering talk has created a bit of a perfect
storm for emerging markets," he said.