Welcome to the weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last few weeks.
China’s economy grows by fastest pace in a decade but momentum is slowing
The Chinese economy rebounded in 2021, growing by 8.1% over the year and clocking up its fastest annual rate of growth since 2011. Robust export demand supported by the global economic recovery was the main driver of growth and proved more than enough to offset weak consumer spending. However, although economic growth was strong from an annual perspective, there are multiple signs that the world’s second largest economy slowed significantly in the second half of 2021.
Growth slowed to 4.0% in the final quarter of last year, its slowest pace since the peak of the pandemic in the second quarter of 2020. Underlying the slowdown are a downturn in China’s property markets, weak consumption and, more recently, sporadic shutdowns in factory activity prompted by outbreaks of Omicron.
In an effort to support the economy, the People’s Bank of China (PBOC) cut its headline policy rate by 0.1% to 2.85%. It also injected 200bn Yuan ($31.5bn) of medium-term cash into the financial system.
US retail spending slows as inflation reaches fastest rate in over three decades
Consumers in the US spent 1.9% less on goods and services in December than they did in November, indicating more cautious spending behaviour due to a combination of factors.
First, US consumers are experiencing rapid price increases, as indicated by the latest inflation data print of a 7% increase over the past 12 months (in line with expectations). Secondly, fears of Omicron might also encourage consumers to spend less time engaging in retail or leisure activity. Moreover, data from the University of Michigan which showed that consumer sentiment fell to its second lowest reading in a decade at the beginning of January.
UK economy recovers to pre-pandemic levels for first time
Data from the Office for National Statistics showed that the UK economy grew by 0.9% in November, leaving it 0.7% larger than in February 2020, before Covid-19 led to a shutdown in activity. Economists had expected growth of 0.4% for November.
This is positive news, but in the short term the Omicron variant is likely to see the UK economy back below its November GDP level during December or January.
Market review: rotation to cyclicals continues as inflation print fuels concerns
Cyclical value stocks continued to outperform expensive growth-orientated stocks last week. Overall, however, global equity indices were broadly unchanged.
The best-performing stocks over the course of the week were in the energy sector, reflecting the oil price’s rebound from its recent drop. The oil price (Brent Crude) has now recovered from below $70, which it reached following concerns that Omicron would decrease demand for oil, to above $85 at the end of last week.
Look out for next week’s update, where we’ll be focusing on the ECB minutes and PMI survey data.
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