The Worst Fears for Global Growth May Be Subsiding

Grounds for more hope that the global economy can avoid a major slump may emerge in the coming week in business surveys showing gradual improvement across much of the advanced world.

Purchasing manager indexes for both the US and the euro zone are anticipated by economists to tick higher. While several gauges will still suggest contraction, the upward direction of travel could add to a growing narrative that a soft landing is achievable.

At the same time, the full effects of concerted policy tightening by central banks have yet to be felt.

Global PMI Activity

Bolstering such prospects are China’s reopening after pandemic lockdowns, evidence of slowing inflation, and the assured views of some senior European officials that their economies won’t suffer recessions. The International Monetary Fund may even soon raise its outlook for the year, its chief hinted on Friday.

“We have, demonstrably, strength of labor markets translating into consumers spending and keeping the economy up,” Kristalina Georgieva said at the World Economic Forum in Davos, Switzerland. “With the reopening of China, we expect growth this year to again exceed the global average.”

How the US fares will also be crucial, however, and the first estimate of fourth-quarter gross domestic product there, due on Thursday, may prove instructive. The economy is seen expanding at a 2.7% annualized rate in the final three months of 2022 after a 3.2% pace in the third quarter.

While such a print suggests solid growth, recent data — including retail sales, home construction and industrial production — showed momentum starting to peter out in late 2022.

Economists surveyed by Bloomberg see GDP in the US declining over consecutive quarters in the middle of this year as steep interest-rate hikes from the Federal Reserve take a bigger bite out of demand.

While Asian momentum could provide a fillip to that outlook, the IMF chief suggested there’s a risk its contribution to the world economy might yet go awry.

“What if the good news of China growing faster translates into oil and gas prices jumping up, putting pressure on inflation?” she said.

What Bloomberg Economics Says:

“Fourth-quarter GDP to a large extent will be boosted by robust consumer spending on services, even as they pulled back on goods. Households continued to tap into excess savings brought on by stimulus and to benefit from solid wage gains. Tighter monetary policy means 2023 will see significantly weaker demand.”

—Anna Wong, Eliza Winger and Niraj Shah, economists. For full analysis, click here

Elsewhere, multiple rate decisions may include a potential final Bank of Canada hike for the cycle, and a 12th consecutive increase in Colombia. Australia and New Zealand may report slowing consumer-price gains, while euro-zone policy makers have a final chance to speak out before their own meeting the following week.

Click here for what happened in the past week and below is our wrap of what’s coming up in the global economy.

US and Canada

Aside from the PMI and GDP reports in the US, the government is projected to report on Friday that inflation-adjusted personal spending on goods and services fell in December for the first time in a year. The data are also expected to show inflation cooled on an annual basis, while remaining elevated.

Fed officials, who are observing a blackout period ahead of their Jan. 31-Feb. 1 policy meeting, will take into account indications of a slowing economy and moderating inflation.

Other reports are expected to show declines in new-home sales and core capital goods.

Read more: Fed Set to Slow Hikes Again and Debate How Much Further to Go

Looking north, the Bank of Canada appears set to cap one of the most aggressive tightening campaigns in its history with what economists and markets expect to be a final 25-basis point increase in borrowing costs on Wednesday.

Policy makers led by Governor Tiff Macklem will probably stop short of declaring an outright halt to hikes, opting instead to hold the benchmark overnight night rate 4.5% while keeping a hawkish tone as they monitor how quickly the economy gears down.

The decision is complicated by conflicting data. Canada’s ultra-tight labor market continues to add jobs with unemployment near a record low, and economic output is set to expand in the final quarter of 2022 at about twice the pace of the central bank’s previous forecasts.

Annual inflation is still uncomfortably high at 6.3%, but underlying pressures show clear signs of abating. Canada’s heavily indebted households, meanwhile, are feeling the pinch of higher rates and starting to curb their spending.

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