Sunday, January 22, 2023

Will next week be decisive in determining the fate of the global economy?

    Sunday, January 22, 2023   No comments

Bloomberg Agency presents a reading of the most important global economic changes, and indicates the possibility of a total change in global markets, especially after the Chinese decision to completely abandon the steps to combat Corona.


Next week may show more reasons for hope about the global economy, after bleak months filled with negative signs of a deep recession, as some data could reflect the gradual improvement of business partnerships in most parts of the developed world.

Economists expect purchasing managers' indices for both the United States and the eurozone to rise, while many metrics will still point to contraction, the upward trend of travel could add to optimism, according to a Bloomberg report.



Global Purchasing Managers Activity

Such possibilities are reinforced by China's post-pandemic reopening, evidence of slowing inflation, and the emphatic views of some senior European officials that their economies will not stagnate. International Monetary Fund Managing Director Kristalina Georgieva hinted on Friday that the lender may soon raise its forecasts for this year.


"We have, clearly, the strength of labor markets translating into consumer spending and sustaining the economy, and as China reopens, we expect growth this year to again exceed the global average," Kristalina Georgieva said at the World Economic Forum in Davos, Switzerland.


But prices in the US will also be decisive, and the first estimate of Q4 GDP there, due on Thursday, could be helpful. The economy is expected to show expansion at an annual rate of 2.7% in the last three months of 2022, after a pace of 3.2% in the third quarter.


While this data points to strong growth, recent data, including retail sales, home construction and industrial production, showed that momentum was starting to fade in late 2022.


Economists, polled by Bloomberg, see US gross domestic product falling for two consecutive quarters in the middle of this year as sharp interest rate increases by the Federal Reserve curbed demand.


While Asian momentum could provide a boost to these expectations, the IMF chief noted that there is a risk that its contribution to the global economy could be derailed.


Expert point of view

America's fourth-quarter GDP will be boosted largely by strong consumer spending on services, even as goods decline.


Households continued to benefit from excess savings from the stimulus and benefit from strong wage gains, and tightening monetary policy means that 2023 will see significantly weaker demand.


Elsewhere, multiple interest rate decisions may include a possible eventual BoC hike, and a 12th consecutive rate hike in Colombia.


Australia and New Zealand may report slowing consumer price growth, while Eurozone policymakers have one last chance to speak before they meet the following week.


United States and Canada

Apart from the US PMI and GDP reports, the government is expected to announce on Friday that inflation-adjusted personal spending on goods and services fell in December for the first time in a year.


The data is also expected to show moderate inflation rates on an annual basis, but they will remain high. Fed officials, who are watching ahead of the end-of-month meeting, will take note of signs of a slowing economy and moderate inflation. Other reports are expected to show a decline in new home sales and core capital goods.


Looking north, the Bank of Canada appears to have put a cap on one of the most aggressive tightening campaigns in its history, with what economists and markets expect to be a final 25 basis point increase in borrowing costs on Wednesday.


Policy makers led by Governor Tiff Macklem will likely refrain from announcing a complete halt to hikes, opting instead to keep the benchmark rate at 4.5% while maintaining a hawkish tone while watching how quickly the economy declines.


The decision is complicated by conflicting data. Canada's ultra-tight labor market continues to add jobs with unemployment near a record low, and economic output is set to expand in the fourth quarter of 2022 at twice the pace of the central bank's previous forecast.


Annual inflation remains uncomfortably high at 6.3%, but the underlying pressures are showing clear signs of abating. Meanwhile, heavily indebted Canadian households are feeling the crunch of higher rates and are starting to cut back on their spending.


Asia

Australia and New Zealand reported their latest inflation figures in the middle of the week, as the RBA contemplates halting its tightening cycle and the RBNZ contemplates its next move after a big rally in November.


In South Korea, Thursday's GDP results may show the economy contracting, a result that could reinforce caution in the central bank.


In Japan, Friday's Tokyo CPI data should indicate whether inflation is closer to peaking in the world's third-largest economy.


Two closely watched South Asian economies, Pakistan and Sri Lanka, will decide key interest rates, along with Thailand.


In turn, the Philippines reported the performance of its economy in 2022, which President Ferdinand Marcos Jr. estimated would grow at 7%.


The Thai Ministry of Finance will provide its latest economic estimate later next week. China will be closed all week due to the Lunar New Year holiday.


Europe and Africa

The last window for ECB officials to communicate ahead of the February 2 interest rate decision will close on Thursday. At the same time, Eurozone data may give more indications of the health of the economy.


Officials are scheduled to appear several times before then, including Bank President Christine Lagarde, who pledged to the Davos audience that she would "stay the course" on monetary policy.


In Germany, where Chancellor Olaf Scholz is now convinced a recession will be avoided, Wednesday's Ifo Business Confidence report is expected to show improvement across all measures. Meanwhile, the first estimate of Spain's GDP for the fourth quarter may reveal a slight expansion.


The UK faces a few quieter days than it has lately, with no monetary policy speakers from the Bank of England and the PMI survey and fiscal data among the only items expected.


And in Hungary, the central bank will set the base interest rate at a monthly meeting on Tuesday, as investors eye a possible pivot towards monetary easing at the depository tender two days later. To the east, Ukrainian officials are expected to keep their benchmark unchanged at 25%.


Regarding Africa, the Central Bank of Nigeria is expected to slow its monetary tightening on Tuesday, with an increase of 50 basis points. Inflation slowed unexpectedly in December, but remained well above the policy target, deterring saving.


On Wednesday, Mozambique's policymakers are likely to leave official borrowing costs unchanged for the second consecutive meeting as inflation expectations slow.


Having prepared early for its battle against the worst global inflation shock in a generation, the Reserve Bank of South Africa is also likely to slow its rate hike on Thursday. Investors expect a more than 80% chance of a rate hike of 25 basis points.


Latin America

On Tuesday, consumer price reports are likely to confirm the formidable challenge facing policymakers in the region's two largest economies.


On an annual basis, Brazil may record a gradual move down from the level of 5.9%, while the main and fundamental results in Mexico as a whole remain unchanged from their latest readings at 7.86% and 8.34%, respectively.


In Argentina, GDP data could be disappointing for a third month, with an overvalued peso and near triple-digit inflation threatening deflation in the fourth quarter.


All certainty, the Central Bank of Chile will keep its benchmark rate at a two-decade high of 11.25% for the second consecutive meeting on Thursday. Inflation that has reached 4 times the target as the economy slips into recession puts Central Bank President Rosana Costa in an awkward position.


Observers in Colombia largely expect the central bank to extend a record cycle of interest increases, with 12 consecutive rate hikes to 13%, in the face of the sharpest wave of inflation in a generation.


Surprisingly, Finance Minister Jose Antonio Ocampo, who is a voting member of the bank's board of directors, said on Tuesday that "the bank does not need to raise again and inflation has peaked, both of which contradict the bank's own polls of analysts."


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