China looks certain to meet its growth target of around 5% for 2023, turning attention to whether deflation risks, the housing crisis and an ongoing confidence crisis will derail efforts to build momentum this year.
Data due Wednesday are likely to show that China’s gross domestic product expanded by 5.2% throughout last year, even as the economy lost some momentum in the fourth quarter.
Retail sales and industrial production are also expected to grow in December from a year earlier against a lower base for comparison – in late 2022, the country was dealing with a widespread coronavirus outbreak.
The beginning of the year brought mixed news. Figures on Friday showed China’s consumer prices fell in December for a third month, the longest contraction streak since 2009. However, exports are showing signs of stabilization despite falling throughout 2023, the first since 2016.
“The recovery in domestic demand will be slow and bumpy as targeted stimulus measures trickle down to investment sectors and the real estate recovery will continue at a sluggish pace,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics.
The People’s Bank of China will have an opportunity on Monday to take measures to counter deflationary pressures and boost lending. Economists polled by Bloomberg widely expect the central bank to cut the interest rate on one-year policy loans by 10 basis points to 2.4%. They also see policymakers pumping more money into the financial system.
That likely won’t be enough to fix things, although economists expect the central bank to take other steps to boost growth, such as reducing the amount of cash banks must hold in reserve. Fiscal support is also available, with the country’s finance minister indicating that government spending will rise.
What Bloomberg Economics says:
“We expect the People’s Bank of China (PBOC) to start the week by cutting interest rates on Monday. Recent data has been on the weak side, giving it good reason to bolster support. Another set of numbers due on Wednesday – Q4 GDP and activity December – on weak conditions.
Economists at Société Générale expect Chinese economic growth of 4.5% this year, based on the assumption of increased fiscal stimulus, slightly more monetary policy easing, stable export growth and support for the housing sector.
“If the Chinese government is willing to strengthen fiscal policy further than we currently expect, growth will likely reach 5%,” Yao Wei, the bank’s chief economist and head of research for the Asia-Pacific region, said at a news conference in Beijing last week.
Also in Asia, Indonesia’s central bank is likely to keep interest rates unchanged on Wednesday, while Singapore’s December exports are expected to post their biggest gain this year. Australian data released on Thursday may show that job growth has slowed, and the Bank of Japan will get the final batch of inflation numbers days before its board meeting.
Elsewhere, German GDP for 2023, UK reports on wages and consumer prices, several speakers from central banks at the World Economic Forum in Davos, and US retail sales will keep investors focused.
Click here to see what happened last week. Below is a summary of what will happen in the global economy.
United States and Canada
Retail sales data is the highlight of the holiday-shortened US trading week. The median forecast in a Bloomberg survey of economists calls for a more moderate progress in purchases excluding auto dealers and gas stations as 2023 comes to a close.
However, along with the strong advance in November, the numbers due on Wednesday should demonstrate the resilience of consumer demand. Figures on housing starts and sales of previously owned homes are expected to show that the residential real estate market is weak but stable.
On Wednesday, the Federal Reserve is scheduled to release its December industrial production report, which is expected to indicate weakness in the manufacturing sector. The central bank will also release a Beige Book summary of economic conditions across the United States.
Fed Governor Christopher Waller speaks Tuesday on the economy and monetary policy, followed later in the week by Regional Fed Presidents Raphael Bostic of Atlanta and Mary Daly of San Francisco.
Assessments of US economic activity
Meanwhile, the possibility of a US lockdown starting January 20 will continue to attract attention. Congressional leaders are working to renew a temporary spending agreement to keep the federal government funded through March.
In Canada, inflation data is expected to show a slight rise to 3.2% in December. The central bank will release quarterly surveys of business and consumer expectations, and a glimpse of a slowing – but still expensive – real estate market will emerge with numbers for existing home sales and housing starts.
A deadline for companies to repay pandemic-era loans will pass amid warnings that thousands of businesses will be at risk unless the government gives them more time. Retail sales data is also scheduled to be released.
Europe, Middle East, Africa
After consumer price data last December indicated resilient inflationary pressures in the United States and the Eurozone, the focus this week is on the United Kingdom.
Tuesday’s wage figures will reveal how the country’s tight labor market is responding, while the core measure of inflation that excludes volatile items such as energy is expected to moderate just below 5%, still more than double the central bank’s target.
Bank of England Governor Andrew Bailey is likely to be questioned about monetary policy when he appears before lawmakers in the House of Lords on Tuesday.
Meanwhile, in the euro zone, industrial production data on Monday may indicate further weakness in November that would increase the likelihood of a general economic contraction in the fourth quarter.
Germany’s release of full-year GDP on the same day may include an indication of how the region’s largest economy will perform at the end of the year, with the possibility of it experiencing a shallow recession.
Several monetary officials will speak in Davos, the Swiss mountain resort where the World Economic Forum meeting is held every January. Among them will be Swiss National Bank President Thomas Jordaens.
European Central Bank President Christine Lagarde is also scheduled to make three appearances there, although the scope of any comments may narrow with the blackout period before her institution’s interest rate decision on January 25 begins on Thursday. A report on the December meeting will also be published that day.
In the Nordics, Swedish inflation will be announced on Monday and two Riksbank policymakers are scheduled to speak later in the week. Norway’s monthly GDP is scheduled for Tuesday.
Looking south, the Bank of Angola on Friday may keep interest rates unchanged or even raise them for the second time in two months in an attempt to rein in stubbornly high inflation. Annual consumer price growth accelerated to 18.2% in November.
latin america
The so-called concentration survey of analysts from the Brazilian Central Bank begins the week. Regardless of the success of Banco Central do Brasil last year in returning consumer prices to their target range, inflation expectations remain unstable, and policy normalization is expected to be a long and deliberate process at best.
Brazil also presents November retail sales and GDP data, along with December job creation figures, which generally decline as temporary staff are laid off for the holidays.
In Peru, November GDP data may show that October’s slight month-on-month expansion has faltered. Economists polled by Bloomberg expect a 0.4% decline in output for 2023. Unemployment is likely to rise at the end of the year in Lima, the country’s capital, from November’s reading of 6.6%.
In a light week for the Southern Cone, Argentina reported December and full-year figures for exports, imports and its trade balance, while Chile had nothing scheduled.
Colombia watchers can look forward to the central bank’s monthly survey of analysts, along with November reports on economic activity, industrial production, manufacturing and retail sales.
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