China’s stagflation risk rises as growth slows: a green week ahead

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Inflation risks in China are rising as new outbreaks of Covid-19 cloud the outlook for economic growth, shining the spotlight on policymakers as top Communist Party leaders gather for a crucial political meeting this week.

Sunday’s trade data will provide clues to the strength of global demand and whether it can continue to support the recovery as domestic engines weaken. Exports likely grew at a double-digit pace in October, albeit at a slightly slower pace than in September, due to a higher base of comparison than last year. Import growth is likely to have accelerated due to higher prices and seasonal demand.

Next is inflation data on Wednesday, which is expected to show a further increase in ex-factory prices to a new 26-year high and rising costs for consumers. More companies are starting to pass higher raw material costs on to their customers, while vegetable prices have recently skyrocketed due to bad weather.

The data comes against the backdrop of a high-level meeting of the Communist Party’s Central Decision-Making Committee from Monday to Thursday, during which President Xi Jinping could lay the groundwork for an extension of his term as head. While no economic plans are expected from the plenary sessions, analysts will be watching closely for any signals on future policy.

The Chinese economy has slowed sharply in recent months as efforts to curb the housing market spill over into sectors from construction to commodities. On top of that, an energy shortage has forced factories to slow production, while strict measures to curb virus outbreaks have held back spending. Premier Li Keqiang said last week that the economy is facing “further downward pressure” and policies need to be fine-tuned to provide targeted support to areas in need.

Credit data due for release this week should show a slight recovery in overall funding in October compared to the same period last year, a sign that the credit slowdown is bottoming out. The central bank recently asked banks to ease some of the excessive restrictions on lending to the real estate sector.

What Bloomberg Economics Says …

“Credit expansion has likely cooled – typical for the start of the fourth quarter. Political efforts to accelerate mortgages and dampen the real estate sector may have prevented a more pronounced slowdown.”

–For a full analysis, click here

Elsewhere, central bankers in Mexico and Romania are expected to raise interest rates again, while their counterparts in Thailand, Serbia and Peru are expected to keep borrowing costs unchanged. Federal Reserve Chairman Jerome Powell and European Central Bank President Christine Lagarde are among dozens of policymakers expected to speak out.

Click here to see what happened last week. Below is our recap of what’s going on in the global economy.

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Investors will wait for the latest price data for consumers and producers. The numbers will be analyzed in the ongoing inflation debate, and whether recent cost increases in industries will last or recede as pandemic ripples subside.

Several Fed policymakers will also speak in public, after the US central bank said on Wednesday that it would begin this month to reduce its bond purchases, instituted to support the economy during the Covid epidemics. 19. Fed Chairman Powell is expected to speak at a joint Fed, ECB and Bank of Canada conference on diversity. Fed officials Mary Daly, Neel Kashkari and John Williams are also expected to attend events, among others.

Asia

The Bank of Japan is releasing a summary of views from its recent meeting on Monday that could further inform its perspective on the path of the economy as Japanese Prime Minister Fumio Kishida reflects on the details of a stimulus package this month . Wage data released on Tuesday is likely to show the continued weakness in wages that the new prime minister has highlighted as weak economic policies in recent years.

South Korea’s employment figures are released on Wednesday, a key data point as the central bank considers another interest rate hike.

Australia’s jobs figures could still encourage investors to consider earlier rate hikes down after market pressure prompted the central bank to abandon its target of yield control.

The Philippines releases third-quarter GDP data on Tuesday, Thailand sets interest rates on Wednesday, and Malaysia releases GDP figures on Friday.

Europe, Middle East, Africa

After two successful weeks which saw the government budget and the Bank of England move, the UK focus will be on Thursday’s growth data. This will give the first official glimpse into the extent of the economic slowdown in the third quarter. Economists predict that output growth will slow to 1.5% from the previous quarter.

Gross domestic product readings are also expected for Russia, Poland and Saudi Arabia, with economists monitoring these to see if the non-oil recovery accelerated in the three months leading up to September.

ECB President Lagarde is among several eurozone central bankers expected to speak this week, with officials increasingly divided over how quickly monetary policy should respond to stubbornly high inflation. The new economic forecast from the European Commission due Thursday could shed additional light on when price pressures may ease.

Romania’s central bank is expected to raise its key rate for a second consecutive meeting in order to contain high inflation for a decade. Serbia, meanwhile, will likely hold up.

South African Finance Minister Enoch Godongwana will present his first medium-term budget on Thursday. A windfall in revenue from rising commodity prices and changes in the way GDP is calculated will likely lead to improvements in key fiscal parameters. Godongwana will also indicate whether a highly speculated basic income subsidy will be introduced.

On the same day, Rwanda’s central bank will likely keep its key interest rate at a record 4.5% to support economic growth as it battles deflation.

Latin America

Three of the region’s major economies are releasing October inflation data this week. In Chile, most analysts expect an acceleration from September’s impression of 5.3%, which beat expectations for a third month. Traders see 5.8% inflation at the end of the year, well above the 3% target.

Mexico reports consumer price figures for the month and two weeks on Tuesday, two days before the Banxico rate-setting meeting. The overall figure is over 6% and market expectations see it close to 6.5% by the end of the year.

In Brazil, most analysts predict that inflation – expected Wednesday – climbed in October from September’s result of 10.25%. The country’s key rate stands at 7.75% and the central bank has announced that a hike to 9.25% is scheduled for its December meeting.

Mexico’s central bank is widely seen as raising its policy rate Thursday by a quarter point for the fourth time in a row to 5%, with inflation well above its 3% target.

Peru’s central bank can be expected to continue tightening on Thursday, raising the policy rate by at least half a point to 2% after the consumer price hike in October.

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