(Bloomberg) – China is likely to report rapid economic growth for the second quarter, although the underlying numbers will paint a more challenging picture.
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A comparison to last year, when Shanghai experienced a Covid-related lockdown, makes Monday’s gross domestic product data look significantly better than it actually was. According to economists polled by Bloomberg, GDP is expected to have grown 7.1% yoy in the quarter, up from 4.5% in the prior period.
However, compared to the first quarter of 2023, it is likely to have increased by only 0.8%. Monthly data for industrial production, retail sales and fixed investment – all scheduled for Monday – are expected to show a significant slowdown in June. In particular, retail sales growth is expected to have eased to 3.3% from 12.7% in May.
Economists are focusing on the latter numbers for a fuller picture of China’s recovery. Signs so far have been disappointing: manufacturing activity is contracting, deflation looms, export demand is falling and recent holiday spending has been muted.
Speculation has mounted that the People’s Bank of China will provide further stimulus after a surprise rate cut in June. Officials signaled on Friday that more support may be on the way, although it is likely to be limited in scope and targeted at specific sectors such as housing and private businesses.
All economists polled by Bloomberg expect the PBOC to leave the rate on its one-year policy loans unchanged at 2.65% on Monday, while some expect a small net injection of funds.
What Bloomberg Economics says:
“The PBOC wants to avoid over-stimulating too quickly. Experience has taught us that massive monetary easing can have undesirable side effects.”
—For a full analysis by Bloomberg Economics’ Asia economists team, click here
Elsewhere, a key UK inflation figure will help signal the magnitude of the next rate hike, retail sales take center stage in the US and central bank decisions from Turkey to South Africa could cause some drama.
Click here to find out what happened last week. Below is an overview of developments in the global economy.
USA and Canada
Tuesday’s retail sales underscore a busy week with US indicators ahead of the July 25-26 Federal Reserve monetary policy meeting. Economists are forecasting a sharp 0.5% increase in June sales, which would bolster evidence of a resilient consumer.
Supported by steady growth in employment and wages, household demand, although slowing, has supported the economy. A sustained rise would help limit recessionary risks amid the Fed’s aggressive rate hike campaign.
Data on home construction, home sales and home builder sentiment will offer a fresh perspective on a housing sector that is beginning to stabilise.
Economists expect the number of housing starts in June fell after the sharpest increase since 2016. Existing home purchase deals are declining as higher mortgage rates continue to impact the resale market.
On Tuesday, a Fed report is expected to show little change in factory production over the past month, indicating a sluggish manufacturing sector.
The highlight in Canada will be June inflation data after the May headline slowed to 3.4%. The focus will be on two metrics tracked by the Bank of Canada: trim and median core interest rates, and services inflation. Their insistence on the target contributed to Wednesday’s decision to hike interest rates to 5%.
The latest data on existing Canadian home purchases and retail sales will show whether consumption remains strong despite rising borrowing costs.
Asia
While China will draw most of the attention, there’s a lot else going on in Asia.
A group of 20 finance ministers and central bank governors are meeting in Gandhinagar, India, where they are expected to discuss the state of the world economy and debt relief amid disagreement over Russia’s invasion of Ukraine.
The Bank of Thailand governor is due to hold a briefing on Wednesday after signaling earlier in the month that monetary tightening would continue.
In New Zealand, where the central bank left interest rates unchanged for the first time in almost two years on Tuesday, quarterly inflation data are expected to show a further slowdown.
Australia’s job market has so far shown resilience to rate hikes, but any softening in jobs numbers on Thursday could signal an end to the monetary tightening cycle.
Trade numbers from Singapore, Indonesia, Japan and Malaysia will be closely watched to gauge the strength of global demand, with South Korea’s July preliminary reading set to provide the latest benchmark on Friday.
Japan’s national inflation figure, also scheduled for Friday, could affect expectations for next week’s Bank of Japan meeting amid speculation about potential policy changes.
Europe, Middle East, Africa
UK inflation will be the data highlight after a recent payroll report suggested price pressures are firming.
While Bank of England Governor Andrew Bailey forecast price growth to slow “significantly” in the second half of the year, similar to the US and parts of Europe, Wednesday’s report may show limited progress. Any sign of stubborn underlying inflation will solidify expectations of another aggressive half a percentage point rate hike, matching the previous move in June.
UK retail sales and deficit numbers due Friday will also inform investors about consumer resilience and the state of public finances.
In the euro zone, the final inflation forecast for June will be released on Wednesday, followed by the release of consumer confidence across the region on the same day.
European Central Bank governor Christine Lagarde is among policymakers speaking at a conference on the economies of central, eastern and south-eastern Europe on Monday.
Few more public statements are planned before a lock-in period begins on Thursday ahead of the July 27 decision, in which a quarter-point rate hike was as good as promised.
In the east, Bulgaria could appoint central bank governor Dimitar Radev for a further six-year term and also start the process of appointing two deputy governors, a step needed for the country to advance its eurozone bid.
Elsewhere in the region, three key decisions are pending from central banks:
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The Bank of Russia could end its longest rate pause in more than seven years on Friday, with the possibility of raising borrowing costs to fight inflation.
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On Thursday, Turkey’s central bank will make its second decision since President Recep Tayyip Erdogan was re-elected in May. After last month’s 650 basis point hike, traders will be watching to see if the bank takes a similar step to counter inflation, which is still close to 40%.
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On the same day, the South African Reserve Bank’s decision could prove to be a close decision on whether officials pause the strongest stretch of monetary tightening since 2006 or hike rates by 25 basis points. Market prices show that traders are betting on a 40 percent chance of such an increase.
South Africa’s data on Wednesday is likely to show that inflation returned to the Reserve Bank’s 3%-6% target range in June for the first time since April 2022.
Latin America
While there are headwinds, the analyst survey from the Central Bank of Brazil and the Brazilian GDP proxy data for May released on Monday should provide renewed grounds for optimism about Latin America’s largest economy.
Inflation expectations have fallen for eight consecutive weeks, growth forecasts have risen for 12 consecutive weeks and monthly manufacturing data has beaten analysts’ estimates for four straight months.
On Tuesday, Colombia’s GDP proxy numbers for May could show a second straight decline as the economy cools off after a hot 2022. Economists expect growth to slow to 1.5% from 7.5% this year.
An easy week in Mexico will see reports on international reserves, retail sales and the Banamex survey of economists.
If inflation is just above target, Paraguay’s central bank could remain at 8.5% for the tenth straight month.
Activity in Argentina ran hot and cold before dropping sharply in April. Too many challenges – triple-digit inflation, deepening recession, dollar shortages and investor concerns about a possible run on the financial system amid an election cycle – point to another negative outlook for May.
Argentina is widely expected to slip into recession this year; Economists polled by Bloomberg expect the economy to contract by more than 3%.
– Featuring Michael Winfrey, Robert Jameson, Paul Jackson, Laura Dhillon Kane, Jill Disis, Monique Vanek, Paul Wallace, Vince Golle and Zoe Schneeweiss.
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