China looks all but certain to hit its growth goal of about 5% for 2023, shifting attention to whether deflation risks, the housing crisis and a lingering confidence crunch will derail efforts to build momentum this year.
Data due on Wednesday will likely show China’s gross domestic product expanded 5.2% for the entirety of last year, even as the economy probably lost some steam in the fourth quarter.
Retail sales and industrial output are also seen growing in December from a year earlier against a low base of comparison — in late 2022, the country was dealing with a massive Covid-19 outbreak.
The start of the year has brought mixed news. Figures on Friday showed China’s consumer prices falling in December for a third month, their longest deflation streak since 2009. Exports, though, are showing signs of stabilization despite having dropped throughout 2023, a first since 2016.
“The domestic demand recovery will be slow and bumpy as targeted stimulus measures trickle through to investment sectors and the property recovery proceeds at a snail-like pace,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics.
The People’s Bank of China will have an opportunity Monday to take action to counter deflationary pressures and boost lending. Economists surveyed by Bloomberg broadly expect the central bank to lower the rate on its one-year policy loans by 10 basis points to 2.4%. They also see policymakers pumping more cash into the financial system.
That likely won’t be enough to fix things, though economists are expecting the central bank to take other steps to boost growth, such as cutting the amount of cash banks must keep in reserve. Fiscal support is also on the cards, with the nation’s finance minister having signaled that government spending will rise.
What Bloomberg Economics Says:
“We expect the PBOC to kick off the week with a rate cut on Monday. Recent data have been on the weak side, giving it good reason to boost support. Another blitz of figures due Wednesday — fourth-quarter GDP and December activity — will probably underline the soft conditions.”
Societe Generale SA economists project Chinese economic growth of 4.5% this year, based on the assumption of increased fiscal stimulus, a bit more monetary policy easing, stable export growth and support for the housing sector.
“If the Chinese government is willing to step up fiscal policy even more than we currently forecast, 5% growth is likely,” the bank’s chief economist and head of research for Asia Pacific, Yao Wei, said at a briefing in Beijing last week.
Also in Asia, Indonesia’s central bank is likely to keep its interest rate unchanged on Wednesday, while Singapore’s exports for December are expected to log the biggest gain of the year. Australian data Thursday may show that jobs growth slowed, and the Bank of Japan gets a last batch of inflation numbers days before its board meets.
Elsewhere, German GDP for 2023, UK reports on wages and consumer prices, multiple central bank speakers at the World Economic Forum in Davos, and US retail sales will keep investors focused.
US and Canada
Retail sales data are the highlight of a holiday-shortened US trading week. The median projection in a Bloomberg survey of economists calls for a more moderate advance in purchases excluding auto dealers and gas stations as 2023 drew to a close.
Combined with a robust November advance, though, the figures due Wednesday should illustrate resilient consumer demand. Figures on housing starts and sales of previously owned homes are expected to show a residential real estate market that’s weak but stabilizing.
The Fed on Wednesday will issue its industrial production report for December, which is expected to point to a weakened manufacturing sector. The central bank will also release its Beige Book summary of economic conditions across the US.
Fed Governor Christoper Waller speaks Tuesday on the economy and monetary policy, followed later in the week by regional Fed bank presidents Raphael Bostic of Atlanta and Mary Daly of San Francisco.
Assessments of US Economic Activity
In Canada, inflation data are expected to show a slight uptick to 3.2% in December. The central bank will release quarterly business and consumer outlook surveys, and a glimpse of the slowing – but still pricey – real estate market will emerge with numbers on existing home sales and housing starts.
A deadline for businesses to repay pandemic-era loans will pass amid warnings that thousands of companies are at risk unless the government gives them more time. Retail sales data are also due.
Europe, Middle East, Africa
After December consumer-price data signaled resilient inflation pressure in the US and the euro zone, the focus this week is on the UK.
Wage figures on Tuesday will reveal how the country’s tight labor market is responding, while the underlying measure of inflation that strips out volatile elements such as energy is seen moderating only slightly below 5%, still more than twice the central bank’s target.
Bank of England Governor Andrew Bailey is likely to be quizzed on monetary policy when he makes an appearance before House of Lords lawmakers on Tuesday.
In the euro zone, meanwhile, industrial production data on Monday may point to further weakness in November that would make more likely the prospect that an overall economic contraction took hold in the fourth quarter.
Germany’s release of full-year GDP the same day may include an indication of how the region’s biggest economy fared at the end of the year, with the possibility that it suffered a shallow recession.
Multiple monetary officials will speak in Davos, the Swiss mountain resort where the World Economic Forum meeting takes place every January. Swiss National Bank President Thomas Jordan will be among them.
Three appearances by European Central Bank President Christine Lagarde are also scheduled there, though the scope of any comments may narrow as a blackout period before her institution’s Jan. 25 rate decision kicks in on Thursday. An account of the December meeting will be published that day as well.
In the Nordics, Swedish inflation will be released on Monday and two Riksbank policymakers are scheduled to speak later in the week. Norwegian monthly GDP is due on Tuesday.
Looking south, the Bank of Angola on Friday may keep rates on hold or even hike for the second time in two months in a bid to rein in stubbornly high inflation. Annual consumer-price growth accelerated to 18.2% in November.
Latin America
The so-called Focus survey of analysts from Brazil’s central bank gets the week rolling. Banco Central do Brasil’s success last year in getting consumer prices back inside their target range aside, inflation expectations remain unanchored, and policy normalization is expected to be a long, deliberate process at best.
Brazil also serves up retail sales and GDP-proxy data for November, along with December job creation figures, which generally tumble as temporary holiday staff are let go.
In Peru, GDP-proxy data for November may show that October’s slight month-on-month expansion faltered. Economists surveyed by Bloomberg see a 0.4% drop in output for 2023. Year-end unemployment in Lima, the country’s capital, likely pushed higher from November’s 6.6% print.
In a light week for the Southern Cone, Argentina posts December and full-year figures for exports, imports and its trade balance, while Chile has 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. – Bloomberg
