US Q4 GDP to crown vigorous second half
A LIKELY moderation of US economic growth in the fourth quarter of 2023 ended an otherwise solid stretch of activity over the final six months of last year, feeding expectations the expansion will remain intact.
Economists project the government’s initial reading of gross domestic product – the sum of goods and services produced – to show an annualised 2 per cent increase, according to the median estimate in a Bloomberg survey. That would follow the 4.9 per cent Q3 advance and mark the strongest back-to-back quarters of growth since 2021.
At the same time, inflationary pressures are becoming less pronounced. A day after last Thursday’s (Jan 18) GDP figures, the US government’s personal income and spending report is seen showing the Federal Reserve’s preferred gauge of underlying inflation rose 3 per cent in the year ended in December, in what would be an 11th straight month of waning annual price growth.
Slowing inflation has opened the door for US central bankers to lower interest rates this year, although many policymakers are reluctant to commit to such a move as early as March.
While the Fed wants to guard against a re-acceleration of inflation, a further softening of price pressures risks making policy even more restrictive. Currently, the inflation-adjusted federal funds rate stands at its highest level since 2007, when the economy slipped into a recession.
Bloomberg Economics economists Anna Wong, Stuart Paul, Eliza Winger and Estelle Ou said: “Our forecast implies brisk 2.7 per cent growth for full-year 2023 GDP, up from 0.7 per cent in 2022. But we think growth will slow meaningfully in the first half of this year, given fast labour market cooling and concerns about credit availability and the sustainability of consumer demand.”
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Fed officials will observe a blackout period in the coming week ahead of their Jan 30-31 policy meeting.
This Friday’s income and spending figures are expected to show that outlays, before adjusting for price changes, increased more in December than a month earlier. That would cap off a healthy holiday shopping season and indicate demand had some momentum entering the new year.
Further north, the Bank of Canada is widely expected to hold its benchmark overnight rate at 5 per cent on Wednesday for a fourth straight meeting.
Elsewhere, the European Central Bank and the Bank of Japan (BOJ) may focus investors watching for signs of the first rate move from each of them, while Turkey’s central bank could deliver the final hike of its cycle.
Asia
The BOJ will meet as speculation over its first potential rate increase since 2007 gains momentum. None of the economists surveyed by Bloomberg expects a move this time, as authorities are still assessing the impact of a New Year’s Day earthquake in the nation’s north-west.
Instead, the focus will fall on how BOJ governor Kazuo Ueda describes progress toward achieving a positive wage-price cycle and any more signals of a hike in the spring.
Japan will post trade statistics on Wednesday that may show exports rebounded in December, possibly putting the economy back into expansion in the fourth quarter. The release of Tokyo consumer inflation figures will end the week.
In China, prime rates are expected to be left untouched at the start of the week.
Meanwhile, 20-day export figures from South Korea will offer an early glimpse of global trade in January. South Korea’s economic growth, to be released later in the week, is forecast to have accelerated in the fourth quarter.
Australia will release business confidence data on Tuesday and flash purchasing managers’ indices the following day.
Malaysia’s consumer inflation is expected to have held steady at 1.5 per cent in December, with its central bank likely to keep rates unchanged on Thursday, and the Monetary Authority of Singapore will also meet during the week.
Thailand and the Philippines will publish trade data, and China will release industrial profits on Saturday.
Europe, the Middle East and Africa
In Europe, the Middle East and Africa, the region’s highlight will be the ECB’s decision on Thursday. Officials, led by president Christine Lagarde, are set to keep rates unchanged at their first meeting of the year.
The governing council appears to be converging around a likely rate cut in June, while markets show a two-in-three chance the first reduction will come in April. Lagarde’s comments will be scoured for any hints on the timing of that first move.
The focus of economic data in the region will include initial readings of purchasing managers’ surveys of 2024 – due on Wednesday – with equivalent reports also coming out in the UK.
Germany’s Ifo business sentiment will be published on Thursday, giving an indication of whether the contraction Europe’s largest economy endured in the fourth quarter is poised to end.
Meanwhile, the European Commission is set to unveil an economic security package, which will include new rules to increase powers to screen and potentially block foreign investment in sensitive industries. Another measure under consideration is the creation of a dedicated fund to boost the development of technologies that can serve both military and civil purposes.
Several other central bank meetings are scheduled throughout the rest of the region.
On Wednesday, Ukrainian officials will announce their rate decision amid uncertainty over foreign financial aid.
Norway’s central bank is expected to keep borrowing costs unchanged at 4.5 per cent on Thursday and maintain its outlook for no cuts until autumn, after recent data backed its view of easing price pressures and a cooling economy.
The same day in Turkey, analysts expect yet another rate hike that may mark the end of the tightening cycle as policymakers combat inflation of about 65 per cent. The central bank is forecast to increase its benchmark one-week repo rate by 250 basis points to 45 per cent.
South African data to be released on Wednesday, which may show inflation eased for a second straight month, is unlikely to persuade officials the next day to cut rates, which have been at 8.25 per cent since May 2023. Governor Lesetja Kganyago told Bloomberg TV that they first need to see consumer price growth slowing sustainably.
Neighboring Eswatini, whose currency is pegged to South Africa’s rand, may follow suit on Friday and hold its key rate at 7.5 per cent. Malawi will also meet for its first 2024 rate decision on Friday.
Latin America
In Latin America, on the inflation front, the region’s two biggest economies are set to post mid-month consumer price readings.
The early consensus is that Brazilian inflation slowed modestly from mid-December’s 4.72 per cent, enough disinflation to keep Banco Central do Brasil in easing mode at its Jan 30-31 rate meeting.
Banco de Mexico can expect some good news after consumer prices ticked higher last month to end 2023 on a sour note, with analysts forecasting a return of disinflation in the early January data.
Argentina is slated to post economic activity data for November and full-year budget results. Economists expect a modest contraction for the full year and see the budget gap hitting 5 per cent of GDP. Looking ahead, President Javier Milei is aiming to balance the books in 2024 via tax measures and spending cuts.
A busy week in Brazil will include full-year bank lending, tax collections, foreign direct investment and current account figures.
Mexico will also report December and full-year trade results, along with November GDP-proxy figures, which may again show some of the slowing seen at the margins in the October data. The unemployment rate last month likely held below 3 per cent amid a rapid run-up in worker wages.
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