China’s Stagflation Risk Builds as Growth Slows: Eco Week Ahead
China’s inflation risks are building while new Covid-19 outbreaks are dimming the outlook for economic growth, throwing the spotlight back on policy makers as the Communist Party’s top leaders gather for a crucial political meeting this week.
Inflation data Wednesday is set to show another surge in factory-gate prices to a fresh 26-year high and a pick-up in costs for consumers. More companies are starting to pass on higher raw-material costs to customers, while vegetable prices have recently spiked because of bad weather.
Numbers published Sunday showed export growth beat expectations in October as foreign demand for its goods continued to surge, despite global supply chain disruptions.
Those data come against the backdrop of a high-profile meeting of the Communist Party’s decision-making Central Committee from Monday through Thursday, in which President Xi Jinping could lay the foundation for extending his term as leader. Although no economic plans are expected from the plenary sessions, analysts will be watching closely for any signals on future policy.
China’s economy has slowed sharply in recent months as efforts to rein in the property market ripple through industries from construction to commodities. On top of that, an energy shortage has forced factories to slow output, while stringent measures to curb virus outbreaks have damped spending. Premier Li Keqiang said last week the economy is facing “new downward pressures” and policies need to be fine-tuned to provide targeted support to areas that need it.
Credit data due to be released this week are forecast to show a slight pickup in aggregate financing in October from the same period last year, a sign that the credit downturn is bottoming out. The central bank recently told banks to ease some of the excessive restrictions on lending to the property sector.
What Bloomberg Economics Says...
“Credit expansion probably cooled -- typical for the start of the fourth quarter. Policy efforts to accelerate mortgage lending and cushion the property sector may have helped avert a steeper slowdown.”
--For full analysis, click here
Elsewhere, central bankers in Mexico, Peru and Romania are expected to increase interest rates again, while their counterparts in Thailand and Serbia are likely to keep borrowing costs unchanged. Federal Reserve Chair Jerome Powell and European Central Bank President Christine Lagarde are among dozens of policy makers scheduled to speak.
Click here for what happened last week. Below is our wrap of what is coming up in the global economy.
Investors will be awaiting the latest data on prices for consumers and producers. The figures will be parsed in the ongoing debate over inflation, and whether recent costs increases across industries will last or recede as pandemic ripples fade.
Multiple policy makers at the Fed will also be speaking publicly, after the U.S. central bank announced on Wednesday that it would start this month tapering its bond purchases, instituted to support the economy during the Covid-19 outbreaks. Fed Chair Powell is scheduled to offer remarks at a joint Fed, ECB and Bank of Canada diversity conference. Fed officials Mary Daly, Neel Kashkari and John Williams are set to appear at events as well among others.
- For more, read Bloomberg Economics’ full Week Ahead for the U.S.
The Bank of Japan releases Monday a summary of opinions from its recent meeting that could shed more light on its views on the economy’s trajectory as Japanese Prime Minister Fumio Kishida mulls the details of a stimulus package this month. Wage data out Tuesday will likely show the continued softness in pay that the new premier has highlighted as a weakness of economic policies in recent years.
Jobs figures for South Korea come out Wednesday, a key data point as the central bank considers another interest-rate increase.
Employment numbers out of Australia may further embolden investors to see earlier rate hikes Down Under after market pressure prompted the central bank to drop its yield-control target.
The Philippines posts third-quarter GDP data on Tuesday, Thailand sets interest rates on Wednesday and Malaysia reports its GDP numbers on Friday.
- For more, read Bloomberg Economics’ full Week Ahead for Asia
Europe, Middle East, Africa
After two blockbuster weeks that saw the government’s budget and Bank of England’s decision, the focus in the U.K. will be Thursday’s growth data. That will give the first official view of the extent of the economy’s slowdown in the third quarter. Economists predict output growth will slow to 1.5% from the previous quarter.
Gross domestic product readings are also due for Russia, Poland and Saudi Arabia, with economists watching the later to see whether the non-oil recovery gained momentum in the three months through September.
ECB President Lagarde is among various euro-area central bankers set to speak this week, with officials increasingly divided over how rapidly monetary policy should respond to stubbornly high inflation. New economic forecasts from the European Commission due Thursday may shed additional light on when price pressures may ease.
Romania’s central bank is expected to raise its benchmark rate for a second consecutive meeting to tame decade-high inflation. Serbia, meanwhile, will likely stand pat.
South African Finance Minister Enoch Godongwana will present his first medium-term budget on Thursday. A revenue windfall from higher commodity prices and changes to the way GDP is calculated are likely to lead to an improvement in key fiscal metrics. Godongwana will also indicate whether a much-speculated basic-income grant will be introduced.
On the same day, Rwanda’s central bank will probably maintain its key interest rate at a record low of 4.5% to support economic growth as it battles deflation.
- For more, read Bloomberg Economics’ full Week Ahead for EMEA
Three of the region’s big economies report October inflation data this week. In Chile, most analysts expect an acceleration from September’s 5.3% print, which exceeded forecasts for a third month. Traders see year-end inflation of 5.8%, well over the 3% target.
On Tuesday, Mexico reports full-month and bi-weekly consumer-price figures, two days before Banxico’s rate-setting meeting. The headline figure is more than 6% and market expectations see it near 6.5% by year-end.
In Brazil, most analysts predict inflation -- due Wednesday -- climbed in October from September’s 10.25% result. The country’s key rate stands at 7.75% and the central bank has signaled a hike to 9.25% is on tap for its December meeting.
Mexico’s central bank is widely seen raising its key rate on Thursday by a quarter point for a fourth straight time to 5% with inflation running well over its 3% target.
Peru’s central bank can be expected to continue tightening Thursday, raising the key rate by at least half a point to 2% after consumer prices jumped in October.
- For more, read Bloomberg Economics’ full Week Ahead for Latin America
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