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China Q4 GDP: Bellwether for the Global Economy?

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China’s economy is expected to have accelerated in the final quarter of last year. That might offset some of the worries that have been percolating in the market lately. Several companies recently have issued warnings that they saw the US slipping into a recession. That has contributed to the recent lack of risk appetite.

If China were to exceed expectations, it could bring back some momentum to the stock market and drag on the dollar. There have been some indications that could happen. But a miss of expectations would fit into an already depressed narrative and not only boost the dollar, but hurt commodity currencies.

Which Way Can the Data Go?

Some positive signs that came out recently were Caixin Manufacturing PMI returning to expansion in December. More importantly, China saw a burst of trade in the final month of the year as well. Growing imports suggests that internal demand remains healthy.

Of course that has to be considered within the context that China has seen its decades-long economic sprint slowing down recently. The ongoing housing market is just one sign of instability issues, as the country faces high youth unemployment. And the major driver of China’s fast growth – the move among young workers to city jobs in a technological industrial revolution – is slowing down as the country’s population peaks.

A Bit of an Up, and Then Some Down

Better performance in Q4 in the world’s second largest economy could momentarily boost risk sentiment. But investors might be focused more on indications of future growth, as they fret that the PBOC isn’t doing enough to prop up traditional areas of the economy. Consumer prices have accumulated three months of deflation, and there hasn’t been a sign of a significant move towards easing by regulators.

The consensus is that China will report Q4 GDP growth at an annualized rate of 5.3%, which would be above the 4.9% reported in the third quarter. However, that includes some timing effects. Quarterly growth is expected to slip to 1.1% from 1.3% in the third quarter.

The Other Data Could Lead the Way

Analysts are expecting China’s economy to slow down further this year, and grow at around 4.5% compared to the government’s target of 5.0% for last year. These projections could get revised to include the new data being released tomorrow. Suggestions that the Chinese economy might slow down while the market is worried about slow growth in the US, could push global markets into a period of pessimism.

China will also report retail sales, which are expected to slow their annual growth rate to 8.5% from 10.1% prior. Industrial production is also expected to show a slight annual deceleration to 6.5% from 6.6%. Both of those indicators are worrying, because they compare to 2022, when the Chinese economy was being subjected to rolling lockdowns. The lack of substantial growth since reopening could suggest that China is headed for a period of slower economic growth, that could weigh on commodity currencies going forward.

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