While many countries have been struggling with budget deficits, Germany posted a better than expected surplus of €18.5bn for the first half of 2016 or 1.2% of GDP. While it has been the German governments’ long-term goal to return to a surplus budget, there is now growing international pressure to increase fiscal spending as monetary policy loses its effectiveness. While it is likely that the incumbent politicians will use this strong fiscal record to secure votes in two important regional elections next month, the surplus gives a significant amount of flexibility to increase spending in the medium term.

Initial readings from the Eurozone indicate that there has not been an immediate negative effect of the UK referendum vote on the wider European economy. Preliminary numbers project that GDP growth will be 0.3%-0.4% for the third quarter, the same rate as the previous quarter. However, a recent survey indicates that growth in household consumption, an important driver of GDP, may slow over the coming months as consumer sentiment fades. Consumers in the Eurozone have been supported by low inflation and growth in employment. Countries such as Spain which has seen significant falls in unemployment (from a very high level), continue to see growth in consumer spending even though there is persistent deflation. Given unemployment is still elevated in many European countries this may be a longer term tailwind for the region.

The Bank of Japan is likely to find itself under renewed pressure to act at its September meeting following core CPI falling 0.5% year on year in July. This is down from June’s 0.4% contraction and worse than expectations. Inflation figures have not been helped by a strengthening Yen, which over the year to the end of July was up over 15% against the US dollar. The 2% target inflation rate set by the BOJ is a long way from being achieved and with so much monetary easing already applied it is difficult to predict what policy changes can be made to spur price rises.

Japan unemployment and US non-farm payrolls are released this week as well as the Chinese manufacturing PMI on Thursday.