It seems certain that China will achieve its growth target of approximately 5% for the year 2023, and this is turning more attention towards the risks of deflation, the housing crisis, and the ongoing problem of confidence, and whether they will hinder efforts to restore growth momentum during the current year.
Data due on Wednesday are likely to show China's gross domestic product grew at a rate of 5.2% over the whole of last year, even as the economy lost some momentum in the fourth quarter.
It is also expected to record growth in retail sales and industrial production during December compared to the low rates recorded in late 2022, when China was facing a widespread outbreak of the Corona virus.
Mixed numbers
The beginning of the new year brought mixed news. Friday's figures showed consumer prices in China fell during December for the third month, the longest series of price deflation since 2009. However, exports showed signs of stabilization, although they declined throughout 2023, the first signs of stability since 2016.
“The recovery in domestic demand will be slow and faltering as targeted stimulus measures shift to investment sectors, and the real estate recovery will continue at a slow pace,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics.
The People's Bank of China will have an opportunity tomorrow, Monday, to take measures to counter the pressures of price deflation and boost lending. Economists polled by Bloomberg widely expect the central bank to cut the interest rate on one-year loans by 10 basis points to 2.4%. They also expect monetary policymakers to pump more money into the financial system.
This will likely not be enough to fix the situation, but economists expect the central bank to take other steps to boost growth, such as reducing the amount of cash that banks must hold in reserve. Financial support also remains a possibility, as the Chinese Finance Minister indicated that government spending will rise.
Bloomberg Economics Opinion: We expect the People's Bank of China to start the week by cutting interest rates on Monday. The recent data has been marred by weakness, giving it good reason to increase support. Another set of numbers scheduled for Wednesday - fourth-quarter GDP and December activity - are likely to underscore the weakness in the economy.
Growth falters
Economists at Société Générale expect China to achieve economic growth of 4.5% this year, based on the assumption of increased fiscal stimulus, a slightly more easing of monetary policy, stable export growth and support for the housing sector.
If the Chinese government is willing to strengthen fiscal policy more than we currently expect, growth is likely to 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 of the year. Australian data released on Thursday may show a slowdown in job growth, while a final batch of inflation numbers will be released days before the Bank of Japan's board meeting.
Elsewhere, investors will focus on Germany's 2023 GDP, UK reports on wages and consumer prices, several speakers from central banks at the World Economic Forum in Davos, and US retail sales.
United State
Retail sales data is the highlight of the holiday-shortened US trading week. The average forecast in a Bloomberg survey of economists indicates a more moderate increase in purchases excluding cars and gas stations in late 2023. However, in addition to the strong increase in November, the numbers scheduled for release on Wednesday are supposed to show the resilience of consumer demand. Figures on new home construction 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 likely 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 will speak on Tuesday about the economy and monetary policy, followed later in the week by Fed Presidents Raphael Bostic in Atlanta and San Francisco's Mary Daly.
Canada
In Canada, inflation data is expected to show a slight increase to 3.2% in December. The central bank will release quarterly surveys of business and consumer expectations, and existing and new home sales figures will show a slight - but still costly - slowdown in the real estate market.
The deadline for companies to repay coronavirus-era loans will pass amid warnings that thousands of companies are 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 pointed to 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 a strong labor market (in which job supply outpaces demand) is responding, while the core measure of inflation, which excludes volatile items such as energy, is expected to moderate just below 5%, which is still more than double. The goal of the central bank.
Euro-zone
Bank of England Governor Andrew Bailey will be questioned on monetary policy when he appears before lawmakers in the House of Lords on Tuesday.
Meanwhile, euro zone industrial production data on Monday may point to further weakness in November, which 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 being exposed to a mild, short-term recession.
Davos Forum
Several monetary officials will speak in Davos, the Swiss mountain resort where the World Economic Forum meeting is held every January. Among these will be Swiss National Bank President Thomas Jordaens.
European Central Bank President Christine Lagarde is also scheduled to speak three times there, but the scope of any comments may narrow as the period of silence that precedes the bank's interest rate decision on January 25 begins on Thursday. The minutes of the December meeting will also be published on that day.
In the Nordic countries, Sweden will announce inflation figures on Monday. Two Riksbank monetary policymakers are scheduled to speak later in the week. Norway's monthly GDP is scheduled for Tuesday.
In Africa, the Bank of Angola on Friday may leave interest rates unchanged, or may even raise them for the second time in two months in an attempt to rein in extremely high inflation, knowing that consumer price growth accelerated year-on-year to 18.2% in November.
Latin America
The week begins with the release of the so-called Focus survey conducted by the Central Bank of Brazil of analysts' opinions. Regardless of Banco Central do Brasil's success last year in returning consumer prices to their target range, inflation expectations remain unstable, and monetary policy normalization is expected to be a long and deliberate process at best.
Brazil, Peru and Argentina
Brazil also announces retail sales data and other figures indicating the size of GDP in November, along with new jobs data in December, which generally declines as temporary employees are laid off for the holidays.
In Peru, November GDP data may show that the slight growth achieved in October 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 capital of Peru, compared to November’s reading of 6.6%.
In a week with little data for the Southern Cone (the southernmost countries of the continent), Argentina publishes export, import and trade balance figures for December and the entire year, while Chile is not scheduled to release any economic data.
Colombia
Colombian economic observers can look forward to the central bank's monthly survey of analyst opinions, along with November reports on economic activity, industrial production, manufacturing and retail sales.
