Key events in developed markets next week

More states are starting to reopen, but social distancing constraints and consumer caution mean that it is a fairly slow and steady start. None of this will be reflected in the coming week’s data though, which will again highlight the steep declines in economic output and the collapse in inflation pressures.

March’s retail sales and industrial production numbers were awful, but April’s figures – due for publication next Friday – will be even worse. We have to remember that the lockdowns only really kicked in from mid-March so the bulk of non-grocery physical stores operated as normal in the first half of the month. We also won’t see the repeat of panic buying in grocery stores that we experienced in mid-March so the upside from grocery will be far less, while the plunge in gasoline prices and the lack of driving as people working from home will also be a huge drag on total April sales. Admittedly, there may be a bit more of a boost from internet sales, but on balance we expect retail sales to drop 15% month-on-month versus a consensus forecast of -10% MoM.

Manufacturing will also report a huge drop – we look for a 13% decline in industrial output as companies either closed production lines, saw demand collapse, had major supplier issues or experienced some combination of all three. The ISM manufacturing index is consistent with such a reading while the oil and gas sector will also see a massive decline in output given the slashing of wells being drilled as oil prices moved negative in the wake of a supply glut and nowhere to store the stuff.

Inflation will plunge too – 1% MoM we expect based on the sharp falls in gasoline prices and massive discounts in apparel (online only, obviously). Food prices may rise though given the switch to grocery sales and away from foodservice. In general, we see very little inflation threat given a massive output gap (excess supply in the economy) and the fact that 30-40 million unemployed workers mean there will be very little wage pressure over the next couple of years.

Like the eurozone and the US which have already reported figures for the first quarter, the UK's GDP numbers next week will only give us an initial sense of the damage.

We expect a slip of around 2% in GDP, given lockdowns began very late in the quarter. Clearly the full damage, incorporating the second quarter, will be much worse. We expect the UK economy to be around 15% smaller by the middle of the year, but more importantly, the recovery will be slow.

We don't anticipate the size of the economy returning to pre-virus levels until 2022 at the earliest.