* Ukraine crisis threatens to rattle investors
* Conflict already hitting Russia
* Data on prices, sales and output test economic health
By John O'Donnell
BRUSSELS, May 11 U.S. and euro zone data will
help investors take the pulse of the global economy this week,
but the crisis in Ukraine threatens to spoil any improvement.
Steady prices and good retail sales are expected to show the
U.S. economy in a more flattering light this week, in
encouraging news for the Federal Reserve as it pares back the
stimulus that has buoyed financial markets for the last few
In the euro zone, where many investors are wondering if the
European Central Bank will follow Washington's example by
turning on its money printing presses, a continued but modest
improvement in output is expected.
But a referendum on independence in eastern Ukraine called
by pro-Russian separatists has underscored the threat of civil
war in the country, a conflict that could rock confidence and
hit trade between Russia and the rest of Europe.
"An escalation of the Ukraine crisis might be the trigger
which leads to a correction and can bring uncertainty back to
the rest of the world," said Carsten Brzeski, an economist with
ING. "The return of uncertainty can really cost growth."
The crisis is having a dramatic impact on the already
fragile Russian economy, dashing hopes that 2014 would be a year
of recovery and placing the country instead on track for
recession as investors dash to withdraw money.
Although European Union sanctions have been so far largely
symbolic, the threat of stiffer penalties from the United States
or Europe against Russia's banks or industry is scaring
Diplomats have told Reuters that the first companies would
be added to the list of targets to be sanctioned this week,
freezing their assets in Europe and marking a toughening of
stance against Russia. The European Union is Russia's top
The conflict threatens to upset Europe at a delicate moment.
The 18 countries in the euro zone are expected to announce
this week that economic output has increased at the strongest
rate in three years. Germany, the bloc's industrial powerhouse,
is also set to report growth.
The recovery is fragile, however, with unemployment at
record highs, banks reluctant to lend and sluggish prices
meaning that the real burden of debts on countries such as
Greece or Portugal is set to remain heavy.
Although the United States does little trade with Russia,
some analysts fear that its business with Europe could be hurt.
"There could be a knock-on impact from Ukraine on the U.S.
through Europe," said Laura Rosner, an economist with BNP
Paribas in New York.
To compound problems, China, the engine of the global
economy, is slowing.
On Tuesday, a tally of China's factory output and retail
sales may portray a stable picture, following a recent
improvement in exports.
The government has meanwhile hastened construction of
railways and affordable housing, while cutting taxes for small
In Europe, the president of the ECB, Mario Draghi, has said
the bank is ready to act in June if slow price inflation
Investors are betting the ECB will cut the cost of
borrowing. Some also await the launch of a programme of
quantitative easing (QE) or printing money to buy assets, such
But while pumping central bank money is easy to start, it is
harder to unwind.
The head of the U.S. Federal Reserve Janet Yellen recently
said that shrinking its $4.5 trillion portfolio of assets to the
pre-crisis size of $800 billion could take the best part of a
Britain's economy too has rebounded thanks in part to the
injection of central bank cash as well as record low interest
Bank of England Governor Mark Carney is due to present new
economic forecasts on Wednesday when he will seek to explain why
it is not in a rush to start unwinding stimulus for an economy
which is growing strongly.
"With QE, it's easy to get in but difficult to get out,"
said Richard Koo of the Nomura Research Institute in Japan.
"The market has got addicted to QE. I hope people are going
to realise more the cost of getting out of QE. It's going to be
(Additional reporting by Jason Bush in Moscow, Kevin Yao in
Beijing; writing By John O'Donnell; Editing by Toby Chopra)