LONDON, May 11 ― Growth in Europe and Japan probably accelerated in the first quarter and American retailers enjoyed another solid month in April, indicating the world economy is making headway. Gross domestic product in the 18-nation euro area is projected to post the fastest growth in three years in January through March.

Growth in Japan advanced by the most in a year as consumers and companies rushed to beat an April tax increase that will probably weigh on the economy this quarter, economists surveyed by Bloomberg project. Retail sales will probably show that the pickup in hiring in the US is giving households the wherewithal to sustain spending in the second quarter.

In the UK, which is headed for the fastest expansion among Group of Seven nations this year, the Bank of England’s Mark Carney presents the quarterly inflation report.

In Chile, where the economy is having a tougher time and inflationary pressures mount, central bankers will consider whether to reduce borrowing costs. Finally, Joe Hockey will present his first budget as Australia’s treasurer.

European growth

Economic growth in the euro area probably accelerated to 0.4 per cent in the three months through March, the best performance since the same three months in 2011, from 0.2 per cent in the previous quarter, according to the median estimate in a Bloomberg survey. The European Union’s statistics office will release the data on May 15 in Luxembourg.

“The economic recovery in the euro area is picking up a bit,” said Marco Valli, chief euro-area economist at UniCredit Global Research in Milan. “But it’s still a very modest number and it doesn’t really change the bigger picture that the recovery remains fragile.”

“The euro-area recovery is broadly on track, but risks remain skewed to the downside,” Fabio Fois, an economist at Barclays Plc, wrote in a research note. While there are downside risks in some countries, such as France and Italy, “this did not cause us to change our projected euro-area growth outlook; we continue to expect GDP to expand 1.3 per cent this year.”

Japan GDP

Japan’s economy probably expanded an annualised 4.2 per cent in the first quarter after a 0.7 per cent pace in the final three months of 2013, the Bloomberg survey median shows before government data due May 15. Demand was probably boosted ahead of an April increase in the nation’s value-added tax to 8 per cent from 5 per cent.

The result is likely to be “supported by strong front- loaded consumption and solidly rising capital expenditure,” Daiju Aoki, senior economist at UBS AG in Tokyo, said in a research report. “In 2014, we estimate that both private- and public-sector demand will support growth even as net exports remain negative.”

US retail sales

Retail purchases climbed 0.4 per cent last month after a 1.2 per cent gain in March that was the biggest since August 2012, economists forecast a May 13 report from the Commerce Department will show. Sales excluding auto dealers probably increased 0.6 per cent after a 0.7 per cent March advance, which would mark the strongest back-to-back gains since early 2013.

“We believe there was pent-up demand in March, leading to a spike that is unlikely to be repeated in April,” Michelle Meyer, a senior US economist at Bank of America Corp. in New York, wrote in a report. “Spending on autos will likely provide a slight drag on the headline number with vehicle sales down in the month after the pop in March.”

Nonetheless, Meyer went on to write that “on balance, the report should show a solid gain in consumer spending, supporting our view that real consumer spending will climb 4 per cent” at an annualised rate in the second quarter after rising at a 3 per cent pace in the first three months of the year.

“Beneath the surface, we anticipate retail activity to look relatively robust,” economists at RBC Capital Markets in New York wrote in a report. Bigger wage gains mean “consumers have more ammunition to drive spending higher in the near term.

April retail sales should provide “a good starting point” for consumer spending in the second quarter. RBC forecasts a 2.2 per cent increase in purchases at an annual rate from April through June.

UK inflation report

Bank of England Governor Mark Carney will hold a press conference in London on May 14 to publish the quarterly Inflation Report, which will be parsed for clues about the outlook for central-bank policy in coming months.

With growth in the UK quickening, the Monetary Policy Committee is focused on the level of spare capacity in the economy as officials gauge how long they can keep the benchmark interest rate at a record low without stoking inflation.

Policy makers may “retreat from their ‘low for longer’ message and signal more clearly the need for households, businesses and markets to prepare for rising interest rates,” said Michael Saunders, an economist at Citigroup Inc. in London.  

“With faster economic growth and clear signs that the jobs market is tightening, we expect the MPC will slightly lift their inflation forecasts further out and project that labour market slack will be exhausted during 2015.”

Chilean interest rates

Chile’s central bank board on May 15 holds its monthly meeting on borrowing costs. Eight of the 13 economists surveyed project the central bank will keep its benchmark interest rate at 4 per cent amid quickening inflation, while five forecast a reduction to 3.75 per cent because of a slower economy.

“The scenario for the central bank has been altered and the probability of a rate cut next week has decreased significantly,” Ruben Catalan, an economist at Banco de Credito e Inversiones, said after a recent report showed inflation in April climbed to a five-year high.

“Secondary effects of the depreciation of the peso, which should have been slight due to the recent weakness in demand, apparently are greater than expected.”

“The central bank will keep borrowing costs on hold because consumer prices are rising and core inflation shows demand pressures generated by the expansiveness of monetary policy,” said Alfredo Coutino, director for Latin America at Moody’s Analytics. The central bank will have to reverse “monetary easing sooner rather than later.”

Australian budget

Australia probably recorded a A$46 billion fiscal deficit in the year through June and government spending cuts, and tax increases will help narrow the shortfall to A$30 billion in the 12 months through June 2015, according to the median estimate of economists ahead of Treasurer Joe Hockey’s first budget on May 13.

“The overwhelming message in the 2014-15 budget will be the need for fiscal tightening,” Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada in Sydney, said in a research report.

“Confirmation of a modestly tighter fiscal stance in both the near and medium term, with a likely immediate negative reaction in both consumer and business confidence, would reinforce the Reserve Bank of Australia’s neutral bias and lower-for-longer cash rate stance.” ― Bloomberg