China’s economy is still searching for a stable footing

(Bloomberg) — China’s economy is still far from safe, as recent green shoots have been offset by lingering fears of an asset crisis and a stubborn inability to revive confidence.

Data due on Wednesday will show moderate growth in quarter-on-quarter GDP growth, although year-on-year comparisons may be less favorable.

The pace of expansion for July-September slowed to 4.5% from a year earlier, below Beijing’s annual growth target of around 5%.

Earlier data for the quarter contained some promising figures that supported steady growth in economic activity, with factory activity improving and a decline in exports as authorities eased stimulus and restrictive real estate policies. The coming week’s reprints of industrial production, retail sales and unemployment are expected to show how widespread that stabilization is.

However, the recovery remains uneven. Consumer prices returned to the brink of deflation in September, data showed on Friday. Home sales also failed to pick up a turnaround, which could weigh on investment and counter support from strong government-led infrastructure spending.

„The upcoming September activity data will be important to watch,” said Chiajia Ji, head of research at Credit Agricole CIP. While the data „may also send a message that the Chinese economy may be showing more signs of stabilization, there is uncertainty associated with continued asset pullbacks.”

There are also questions about how much additional stimulus China will release to support the economy. On Monday the People’s Bank of China will set the rate on its one-year medium-term lending facility, a key policy rate. Economists widely expect that to remain unchanged for now, though many expect a reduction by the end of 2023.

There may be other activities on the horizon. China is considering raising its budget deficit for this year by issuing more debt to spend on infrastructure, Bloomberg reported. Officials are also mulling the creation of a state-backed stabilization fund to boost stock market confidence, while the country’s sovereign wealth fund recently bought about $65 million worth of stakes in the country’s biggest banks.

Some economists point to the need to address an even bigger albatross: the real estate market.

„The Chinese government needs to do more policy easing, especially related to property,” Xi said. „There is still room to further relax or remove various policy restrictions in major cities.”

Here’s what Bloomberg Economics says:

„China’s recovery is starting to gain some traction, supported by strong public investment and demonetisation. This should be evident in September activity and third-quarter GDP data – below headline readings. This will set growth for a better performance in the second half of 2023.”

– For full analysis, click here

Elsewhere, talk from the Federal Reserve chairman and UK inflation and wages data will draw attention, while central banks in Indonesia and South Korea are likely to keep interest rates unchanged.

Click here to find out what happened last week and below is our summary of what’s to come in the global economy.

USA and Canada

Investors will be weighing Jerome Powell’s comments on whether the Fed is leaning toward another rate hike before the end of the year, following data showing more buoyant inflation. The Fed chief addresses the Economic Club of New York on Thursday — the headline event in a busy week of speeches.

Regional central bank presidents Patrick Harger, Thomas Parkin, Neal Kashkari, Lori Logan, Loretta Meister and Austin Goolsbee are scheduled to appear at various events. Fed Governors Lisa Cook and Christopher Waller will also speak.

In upcoming economic data, retail sales are expected to moderate consumer demand as the third quarter ends. The value of purchases in September, unadjusted for price changes, rose by half from the previous month.

Tuesday’s release could show a decline in so-called control group sales, the first decrease in six months. These sales are used to calculate spending on most goods in the GDP report, excluding receipts at food service establishments, auto dealers, hardware stores, and gas stations.

Another report in the coming week is expected to show the weakest annual rate of existing home sales since 2010 as the real estate market continues to suffer from high borrowing costs and limited inventory.

Housing starts, meanwhile, are likely to break even after a slump in multifamily home construction in August.

In Canada, inflation will be a highlight on Tuesday due to several reports that will show whether price gains in key measures of around 4% have eased further.

• Also, read Bloomberg Economics’ full week for the US

Asia

Away from China, the week begins with voters in New Zealand electing a new Conservative government in Saturday’s general election.

Inflation figures released on Tuesday showed the cost-of-living crisis continued to weigh on households there, even as food-price growth eased.

Three Reserve Bank of Australia officials will speak in the coming week, with Governor Michael Bullock continuing to lay out his vision of emerging leadership on Wednesday. Jobs will be published next day.

Bank Indonesia is expected to keep rates steady on Thursday, as it has done since raising them in January. The same is true for Bank of Korea, even as inflation heats up again.

Trade data from Indonesia, Malaysia and Japan are also released during the week.

A key event in Tokyo will be the release of union wage demands for next year on Thursday. Bank of Japan officials will closely watch that announcement along with nationwide CPI figures on Friday, citing the need for stronger wage gains.

• Also, read Bloomberg Economics’ full week for Asia

Europe, Middle East, Africa

The United Kingdom will be central to Europe. After numbers on Thursday showed that growth was weak in August, further releases will give Bank of England officials an indication of whether their recent pause on rate hikes is justified.

On Tuesday, payrolls data could point to weaker pressures in August, with accompanying labor-market numbers also showing a loss of momentum.

The following day, core inflation, which strips out volatile components such as energy, as well as the headline CPI, is expected to fall in September.

It’s been a quiet week in the Eurozone. Germany’s ZEW gauge of investor confidence was released on Tuesday, while euro-area inflation data on Wednesday could confirm early readings that showed weaker pressures.

For the European Central Bank, the first three days of the week will mark the end of the pre-decision window to talk about monetary policy before officials meet on October 26. Central bank governors from France, Spain, the Netherlands and Germany are among those scheduled to deliver remarks.

ECB President Christine Lagarde will attend a meeting of euro-zone finance ministers in Luxembourg on Monday, which will also be attended by US Treasury Secretary Janet Yellen.

Italian Finance Minister Giancarlo Giorgetti will also be there, but only after he presents a budget law that includes the loose fiscal plans of Prime Minister Giorgia Meloni’s coalition. Italy’s sovereign rating is due for a review from Standard & Poor’s on Friday.

Turning north, several Riksbank officials, including Governor Erik Thiedin, are due to speak – comments that will be closely watched after stubborn core inflation adds to the case for another rate hike next month.

In the Middle East, Israel released data on Sunday that showed price increases did not accelerate last month after a surprise surprise in August took inflation above 4%.

The outlook is now shifting as the shock of Hamas attacks on Israel leads to a military expansion that could scar the economy by affecting consumption, investment and tourism. The market is no longer expecting a rate hike from the Bank of Israel and is holding out for its first monetary easing since the pandemic. Now the decision has been taken on October 23.

In Africa, data on Monday will show Nigeria’s inflation rose above 27% for the ninth consecutive month. Under the new leadership, the central bank could see a hike in borrowing costs at its next meeting.

On Tuesday, South Africa’s monetary authorities will release a review of domestic and international developments affecting their policy. The next day’s data may show September inflation accelerated from the 4.8% level seen in August.

A weaker rand, higher oil costs and an outbreak of bird flu could temporarily lift price gains. Forward-rate contracts that open in two months – used to estimate borrowing costs – traders are showing a 70% chance of a quarter-point increase on November 23.

• To learn more, read Bloomberg Economics’ full week for EMEA

Latin America

Peru on Monday released its August GDP-proxy figures and Lima jobs report, less than a week after Finance Minister Alex Contreras cut the economy to Congress. Peru’s recession worsened in July, with the economy contracting 1.3%.

Brazil GDP-proxy data released on Thursday showed Latin America’s largest economy expanded for the 22nd straight month in August, its longest run since the second administration of President Luiz Inacio Lula da Silva a decade ago.

Economists polled by the central bank have almost tripled their 2023 GDP forecast to 2.92% since early May.

In Colombia, August’s GDP-proxy print should show a barely expanding economy. Economists polled by Bloomberg cut their third-quarter output forecast to 0.7% from 1%.

Elsewhere, the central banks of Brazil and Colombia publish surveys of economists, while Citipanamex publishes its biweekly survey of Mexican analysts.

The region’s two largest economies report retail sales figures for August. Brazil’s results easily surpassed Mexico’s in the two decades starting in 2000. But that relationship has flipped since the peak of the pandemic: Since January 2021, Mexico’s retail sales have averaged 9.6% year-over-year, outpacing Brazil’s sluggish 1.8%.

• Also, read Bloomberg Economics’ full week for Latin America

–With assistance from Vince Cole, Piotr Skolimowski, Paul Jackson, Jill Tsis, Robert Jameson, Fran Wong, Alan Wong, Monique Vanek, and Paul Wallace.

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