China’s strong data likely to mask weak recovery

(Bloomberg) — This week’s key economic data may suggest China’s recovery is doing much better than it actually is.

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Official figures on Tuesday are expected to show faster year-on-year growth in industrial production and retail sales for April, both of those key datasets likely to accelerate from March. Fixed asset investment is forecast to pick up in the first four months of 2023.

The figures come with a big caveat: They all compare to an extraordinary period last year, when the manufacturing and financial hub of Shanghai was locked down as cases of Covid spread in China.

That means that while economists typically scrutinize China’s year-over-year data, this time they see month-to-month comparisons as a better indicator.

The latest figures have provided evidence that the economy’s momentum – driven by the output of hitherto stagnant demand – is cooling. China’s consumer prices grew barely last month, while new borrowing fell and housing market sales began to decline. April trade data showed a decline in imports and a slowdown in export growth.

The loose recovery has raised questions about how much the world’s second-largest economy can lift global growth this year, while other countries hoped the end of China’s pandemic restrictions would benefit their own exports.

Here’s what Bloomberg Economics says:

“China’s April activity data may provide another example of headline figures that cannot be taken at face value. We expect manufacturing and retail sales to pick up – compared to last year’s horrendous numbers, which dented during the Shanghai lockdowns.

– Chang Shu and David Gu, economists. For the full report, click here

It also sparks debate over whether the People’s Bank of China will ease monetary policy. Some economists say the central bank is likely to act this year — including cutting its key policy rate — now that the U.S. Federal Reserve is likely to pause hiking.

Bloomberg Economics, the consensus, expects a rate cut to come soon as growth “clearly needs support.” Others say that now that there is plenty of liquidity, the country should prioritize measures that boost business confidence and ensure household income growth.

Elsewhere, Japan will release inflation and growth numbers, the European Commission will release new quarterly economic forecasts, Mexico’s central bank has a cliffhanger rate decision, and data in the US could still show economic weakness.

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

Asia

There is much more on the agenda than just Chinese data.

In Thailand, Monday’s GDP data will show a pick-up in growth. The data comes a day after the national elections. A mix of pre- and post-election polls show pro-democracy parties leading efforts to replace the military-backed government that first took power in 2014.

The Philippine central bank may pause its rate hike cycle on Thursday.

India releases trade figures on Monday, while New Zealand and Malaysia will on Friday.

Japan will report its first-quarter gross domestic product figures on Wednesday, which will show further growth, while inflation is expected to show further acceleration on Friday, sharpening the cost-of-living impact.

The US economy and Canada

The US calendar provides views on consumer demand, the housing market and manufacturing at the start of the second quarter. Government data on Tuesday is expected to show a rebound in April retail sales, driven largely by strong results from auto dealers.

On the same day, central bank figures may show a modest increase in April factory output after the biggest decline in three months. Outside of steady appetite for motor vehicles, many manufacturers are struggling with softer demand for commercial products.

Housing starts and sales of pre-owned homes are expected to slow as the sector continues to struggle for inspiration in a high-interest-rate environment in April housing data.

The calendar for Fed officials is busy, and includes two days of congressional testimony from Vice Chairman for Supervision Michael Barr on the current stress on the banking system and the Fed’s response. Over the weekend, Fed Chairman Jerome Powell will join former chairman Ben Bernanke in a panel discussion at the Monetary Policy Research Conference.

Other central bank officials scheduled to speak include board members Philip Jefferson and Michael Bowman and regional bank presidents Lori Logan, Loretta Meister and Austin Goolsbee.

Further north, a new set of inflation data will inform traders’ bets on the path of future rates, and the Bank of Canada will release an annual review of its financial system amid renewed global banking concerns.

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Europe, Middle East, Africa

A week interrupted by a holiday in some continental European countries on Thursday will be bookended by two key economic assessments.

On Monday, the European Commission will release quarterly forecasts with a more complete look than the February version, including projected debt and deficits.

Officials last time said the euro-zone economy was doing better than previously feared. They must balance that against weak German data and evidence of global interventions. Their inflation outlook may also attract interest as price growth shows few signs of slowing.

After the market close on Friday, Moody’s Investors Service will say whether to downgrade its negative outlook on Italy, marking the country’s first junk rating.

Read more: Italy survives Fitch ruling on boost for Meloni before Moody’s

It was a quiet week for data, with industrial production for March and second readings of GDP and inflation in the following days.

Several European central bank officials will speak out, and they increasingly agree that their tightening cycle is not close to ending. President Christine Lagarde will deliver remarks on Friday, while other public appearances will include executive committee members Luis de Guintos and Isabelle Schnabel, as well as central bank governors from Germany, Ireland and Spain.

Vice President Guindos told Italy’s Il Sole 24 Ore that the ECB is “in the house” of its rate hike path.

In the UK, the Bank of England raised rates and signaled further tightening, with wages data on Tuesday closely watched. Gov. Andrew Bailey and many other officials make public appearances with lawmakers or at other events.

In Sweden, inflation data for April will draw attention on Monday after the Riksbank’s latest hawkish decision, just as housing market woes weighed on economic growth.

Several GDP reports are scheduled from across Europe, from Denmark to Slovenia to Poland. Perhaps most interesting is Hungary’s, on Tuesday; Its economy shrank in the first quarter amid a deep recession and the EU’s fastest inflation and highest interest rates.

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Three central bank decisions are due across the African continent:

  • The Bank of Zambia will raise its key rate for the second time this year on Wednesday to curb double-digit inflation and support its currency, which has come under pressure from slow progress in debt restructuring talks.

  • A temporary slowdown in price growth may give Egypt’s central bank room to pause its monetary tightening on Thursday.

  • On Friday, Angolan policymakers will cut borrowing costs for the third time this year as inflation continues to cool. Governor Jose de Lima Mazano said last month that if price pressures eased further, “we will probably end the year with a base interest rate of 15%.” Currently the ratio is 17%.

Finally, the outcome of Turkey’s close election will be a key focus for investors.

Latin America

On a busy Monday, Brazil’s most-watched Focus survey, Peruvian economic activity and Lima labor market data topped Colombia’s first-quarter release report. After expansion of 11% and 7.5% in 2021 and 2022, economists surveyed by Bloomberg expect growth of 1.1% in 2023 and 2.2% in 2024.

Chile’s economy will expand in the second quarter in the three months to March. Its finance ministry now sees a 0.3% expansion this year, down from the previous estimate of a 0.7% decline.

On Tuesday, Uruguay’s central bank may follow up with April’s surprise quarter-point rate cut as a multi-year drought hits the economy.

In Brazil, a rapid cooling of inflation and government housing support may keep retail sales buoyant in March, with GDP-proxy data for the same month expected to exceed a three-year high in February.

Banksico’s meeting is tough to call: After 15 hikes and 725 basis points of tightening in 23 months, there’s a real chance the Fed is done. Will the panel members led by Governor Victoria Rodríguez Ceja keep the current 11.25% or go for another quarter point increase to bring the key rate to 11.5%?

–With assistance from Vince Cole, Sylvia Westall, Andrea Tudyk, Nazreen Seria, Jill Dzis, Fran Wang, Robert Jameson, and Laura Dillon Kane.

(Updates with Thailand elections in Asia section, ECB in EMEA section)

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