China’s Economy Keeps Gliding on Just One Engine

Article Content

(Bloomberg) — China’s economy has relied on industrial production to keep growing this year, and data next week will provide evidence of how strong that support is.

Export figures due out on Wednesday could show some strengthening in July, confirming that trade was a rare bright spot.

According to the National Freight Forwarding Federation, shipping volumes from China’s ports in the first half of the year rose 8.5% compared with 2023, with container freight rates quadrupling. Exports — from cars to steel to consumer goods — also surged.

Article Content

But the picture ahead is less clear. Manufacturing survey data was mixed, with overall factory activity falling. Most worrying was the Caixin index, which has a relatively high weighting of private companies and exporters, which unexpectedly contracted for the first time in nine months.

It’s a worrying sign, especially after Chinese officials made clear in July that aid to stimulate domestic consumption would be limited, a piece that has been conspicuously missing from the economic growth pie since the property bubble burst.

Exporters may also see diminishing returns. While trade volumes are rising, Chinese companies aren’t necessarily benefiting, as they are also cutting prices. As a result, the total value of goods exports has barely moved this year, rising just 0.4%.

Later in the week, inflation figures are expected to remain low, with producer prices shrinking for the 22nd straight month.

Analysts are taking note. Citi economists have cut their forecast for China’s growth this year from 5% to 4.8%, while UBS economist Wang Tao now sees some downside risks to the growth forecast to 4.9%.

Article Content

What Bloomberg Economics says:

“China’s exports are likely to grow faster in July, helped by a positive comparison with the weak year-earlier figures. That won’t be enough to drive faster GDP growth. So far, the third quarter looks set to repeat the pattern of the previous quarter, when weak domestic spending outpaced export gains. For overall growth to meet the official 5% target in 2024, more stimulus is needed to stimulate domestic demand.”

—For the full analysis click here.

Elsewhere, U.S. services activity is likely to have grown slightly in July, German data may show whether the country’s manufacturing slump is continuing, and central banks from Australia to India to Mexico will set interest rates.

Click here to see what happened last week, and here’s our summary of what’s coming in the global economy.

United States and Canada

Following Friday’s monthly jobs report that showed a marked slowdown in payroll growth and raised recession fears, the US economic calendar has become considerably quieter.

The Institute for Supply Management is due to release its services index on Monday, and economists expect modest growth in July.

Article Content

Article Content

Investors will focus on weekly jobless claims data on Thursday. Jobless claims in the week ended Aug. 3 are expected to have fallen only slightly from their highest level in nearly a year. The figures will provide clues as to whether the labor market is at greater risk of a downturn.

There are also few Fed officials attending the conference after the central bank left interest rates unchanged on Wednesday. But investors will hear from a handful, including regional Fed bank presidents Mary Daly of San Francisco and Thomas Barkin of Richmond, both FOMC voters in 2024, and Austan Goolsbee of Chicago.

The Bank of Canada will release a summary of the deliberations that led to its July 24 rate cut to 4.5%, and its signal of more easing ahead. The document could provide insight into the possibility of a third straight cut in September. Statistics Canada will also release its July labour force survey, which is likely to show that job gains are still lagging behind robust population growth.

• For more information, read the full Bloomberg Economics report on the week ahead for the United States.

Asia

Article Content

In Asia, two major central banks are expected to hold steady on policy, with attention focused on whether they will soften their rhetoric.

The Reserve Bank of Australia is expected to keep its cash rate target at 4.35% on Tuesday after core inflation unexpectedly slowed in the second quarter and economic growth slowed more than expected in the first three months of 2024.

Two days later, the Reserve Bank of India decided to keep its benchmark interest rate at 6.5%, changing its language to reflect a neutral pause rather than a hawkish stance, as more officials worried about the growth outlook.

Elsewhere, Japan’s cash earnings figures for June could show the fastest pace of gains in a year as wages start to show the fastest rise in more than 30 years.

Trade figures for the Philippines and Taiwan are also due.

The Philippines’ economic growth is expected to accelerate in the second quarter on an annual basis while slowing to 1% from the previous period, while the country’s price gains may rebound in July after typhoons pushed up food prices.

• For more information, read Bloomberg Economics’ full report on the week ahead in Asia.

Europe, Middle East and Africa

Article Content

Germany will release key manufacturing data for three days in a row, starting on Tuesday with factory orders, followed by exports and finally industrial production for June.

Economists expect the latter measure to rise 1% during the month, partly correcting a much larger decline in May, when output hit its lowest level since the first year of the pandemic.

In the UK, where the Bank of England cut interest rates on Thursday, the calendar will be noticeably quieter. The central bank is due to release a quarterly report on its quantitative easing programme on Tuesday.

Turning to Russia, data due out on Friday is likely to show growth slowing in the second quarter compared with the previous three months. However, the economy remains overheated, with accelerating inflation forcing the central bank to raise interest rates sharply for the first time this year.

A number of consumer price data are due:

• Turkey’s inflation rate may have slowed to 62% on Monday from 72% a month ago, another sign that the central bank has managed to keep prices under control and that Turkey has overcome the worst of its cost-of-living crisis.
• Egyptian authorities are hoping on Thursday that inflation will slow for a fifth straight month. The index fell to 27.5% in June, before the country received a huge bailout package led by the United Arab Emirates and the International Monetary Fund that appeared to have ended a foreign exchange crisis.
• In Norway, headline and core inflation indicators are expected to rise slightly on Friday. The central bank said it expects to keep key interest rates at their highest levels since 2008 until sometime in 2025.
• Final inflation data for Germany and Italy for July are due to be published on the same day.

Article Content

Three major interest rate decisions are due across the region this week:

• Kenya’s central bank may decide on Tuesday to keep benchmark interest rates at 13% amid ongoing anti-government protests that have shut businesses and renewed pressure on the currency after the government scrapped a plan to raise up to 346 billion shillings ($2.7 billion) in taxes.
• The following day, the Romanian central bank may consider another interest rate cut, and officials will also discuss and approve a quarterly inflation report to be presented by Governor Mugur Isarescu, possibly on Friday.
• The Serbian central bank’s decision on Thursday could lead to further easing after two consecutive rate cuts, or it could take a break to assess remaining price pressures.
• For more information, read next week’s full Bloomberg Economics report for Europe, the Middle East and Africa.

latin america

Inflation has stalled in most of Latin America, except Colombia, marginalizing or at least slowing monetary policy easing cycles by central banks.

The Bank of Mexico and the Central Reserve Bank of Peru hold their August interest rate meetings on Thursday, and the consensus among analysts is that the Bank of Mexico will cut borrowing costs by a quarter of a percentage point to 10.75%, while the Central Reserve Bank of Peru will keep rates at 5.75%.

Article Content

Brazil’s central bank will publish the minutes of its second meeting on Tuesday, held on July 31 to keep its key interest rate at 10.5%. Analysts are slowly shifting to traders’ belief that a rate hike could be on the cards this year, although the statement following the decision offered no firm guidance.

Colombia’s central bank also released minutes of its July 31 meeting, in which policymakers shrugged off rising inflation risks and decided to cut interest rates for the fourth straight time by half a percentage point to 10.75%.

Consumer price data in four of Latin America’s biggest economies is likely to show another increase last month above the 3% targets in Brazil, Mexico and Chile, while falling below 7% in Colombia from 7.18% in June.

Mexico’s inflation data for July will be released hours before the conclusion of the central bank’s interest rate meeting, with some analysts expecting an annual rate of 5.5% or higher, up from 4.98% in June.

• For more information, read Bloomberg Economics’ full report on the week ahead for Latin America.

—With assistance from Brian Fowler, Robert Jameson, Laura DeHillon Kane, Piotr Skolimowski, Paul Wallace, and Kaira Zavyalova.

Article Content