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China's economy will be in the spotlight next week when Beijing releases its fourth-quarter gross domestic product figures – and markets are expecting a pick-up in growth after a series of disappointing numbers.
Official data released on Friday showed Chinese consumer prices remained in deflationary territory for a third straight month in December, adding to challenges for policymakers. But even amid falling prices, subdued trading and ongoing problems in the housing market, a median forecast from economists surveyed by Bloomberg suggests fourth-quarter GDP will rise 5.2 percent year-on-year.
That would be an improvement on the 4.9 percent growth in the previous three months – helped in part by a flattering base effect due to a sharp decline in economic activity in late 2023 during China's final phase of zero-Covid isolation. Some analysts predicted an even bigger jump in growth in the fourth quarter, he released on Wednesday. Standard Chartered forecast an increase of 5.8 percent.
Economists at Natixis said the fourth-quarter numbers would likely see China achieve annual growth in line with Beijing's target level of “around 5 percent.” However, they warned that “maintaining the same growth target for 2024 will be difficult as the base effect provides less tailwind and the structural slowdown continues.” Hudson Lockett
Is inflation still falling in the UK?
British inflation data on Wednesday will provide investors with the latest clue as they assess how quickly the Bank of England will cut interest rates this year.
The faster-than-expected decline in inflation from 4.6 percent last month to 3.9 percent in November prompted markets to bet that the BoE would cut interest rates more aggressively than previously expected.
Economists polled by Reuters forecast the downward trend in inflation slowing in December and annual price growth slowing to 3.8 percent.
Samuel Tombs, an economist at Pantheon Macroeconomics, expects inflation to remain unchanged from November. That would still be well below the 4.6 percent forecast by the Bank of England for December. But Tombs added that it was unlikely there would be a dovish reversal in the central bank's language as “wages growth” at next month's policy meeting [is] currently far too fast for the committee to tolerate indefinitely.”
Ellie Henderson, an economist at Investec, expects price growth to have moderated to 3.5 percent due to lower fuel prices and lower food inflation. It also forecast a decline in core inflation (excluding food and energy) to 4.7 percent in December from 5.1 percent the previous month. The consensus assumes a milder easing to 4.9 percent.
Henderson expects “some bumps” on the road to the Bank of England's 2 percent target, with a rise in January due to energy base effects and increased risks from the current Red Sea crisis.
However, a growing number of economists believe that gas prices, which have fallen significantly since November, will help bring inflation below 2 percent by April. Among them is Andrew Goodwin, an economist at Capital Economics, who predicts inflation will settle at just under 2 percent from April. “The UK inflation outlook has changed due to the sharp fall in oil and gas prices and the recent easing in core price pressures,” he said. Valentina Romei
What will retail sales tell us about the health of the US consumer?
December retail sales, to be released on Wednesday, will offer a glimpse into the health of U.S. consumers at a time when borrowing costs for Americans are at their highest level in decades.
Economists polled by Reuters forecast that the Census Bureau will report a 0.3 percent increase in total retail sales in December from the previous month, the same rate of increase as in November. Excluding the more volatile auto sector, retail sales are expected to have increased 0.2 percent in December from the previous month, also unchanged from November.
Sustained growth in retail sales suggests consumer spending remains strong amid elevated interest rates.
“Borrowing costs for consumers remain high and student loan payments resumed in October, but job growth is still strong and wage growth is still strong and higher incomes are ultimately the main driver of retail sales,” said Torsten Slok, chief economist at Apollo Global management.
Those views were reiterated Friday morning by JPMorgan CEO Jamie Dimon, who said the bank expects U.S. consumers to remain resilient.
Retail sales will be part of the Fed's calculation when it meets later this month. While no change in interest rate policy is expected, a big retail sales surprise – particularly one that shows U.S. consumers far weaker than consensus – could bolster the case for earlier rate cuts this year. Kate Duguid
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