Top News

China’s New Covid Outbreak Puts Recovery at Risk: Eco Week

(Bloomberg) — Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

China is dealing with its most widespread Covid outbreak since the initial cases in 2020, with lockdowns striking a blow to consumption growth just as exports slow and while flooding and chip shortages weigh on industry.

How that’s affecting the economy will start to become clearer on Monday, when July industrial output and retail sales data are released. Floods earlier in the month plus lockdowns and movement controls that have expanded since mid-July are likely to have hurt holiday travel and spending, and may also have damaged manufacturing.

The central bank will likely give an indication whether the outbreak has caused it to change its monetary policy stance. Some 700 billion yuan ($108 billion) in one-year loans will mature, and markets are focused on how much of that the People’s Bank of China will replace on Monday or Tuesday, and at what interest rate.

China’s factory production was faced with multiple constraints in July, with shocks from heavy rain and floods, chip shortages, faltering demand, and environmental curbs. Investment growth remains slow, as the pace of local government infrastructure bond issuance hasn’t picked up and Beijing is continuing with its tough stance on the property market.

Consumption, especially of services, was among the first to feel pain from China’s most widespread outbreak since Covid first appeared in Wuhan. Spending during the summer holidays is set to suffer as authorities rushed to close tourist sites, call off cultural events, and cancel many flights.

The aggressive moves in pursuit of the goal of zero Covid-19 infections will likely prove economically costly, weighing on an already-softening recovery where export growth is slowing, factory-gate prices are rising, and the real estate market is subdued.

This week, an outbreak at Ningbo-Zhoushan port halted about all inbound and outbound container services at one terminal, stopping about 25% of the capacity of China’s second-largest container port for an uncertain period of time.

If that continues for weeks it will disrupt not only China’s exports and economy, but have a domino effect on imports in other countries. The shutdown follows the closure of Yantian port in Shenzhen for about a month from late May after a small outbreak, which had ripple effects on international shipping.

What Bloomberg Economics Says:

“The blow to China’s economy from the delta variant outbreak deepened in the past two weeks, according to high-frequency data. Deterioration on the demand side in late July and growing job concerns seen in early August suggest the setback to growth will be larger than the impact from flare-ups earlier this year — increasing downside risks to our forecast for a 6.8% expansion in the third quarter.”

–Chang Shu and David Qu. For full preview, click here

Elsewhere, central bankers in New Zealand are predicted to hike interest rates, while their counterparts in Indonesia, Norway, and Namibia are expected to hold.

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

U.S.

In the U.S., investors will be eyeing the latest retail sales data on Tuesday to see if consumer demand remains strong and if the shift in spending to services from goods continued in July. Other reports due include those on business inventories, industrial production, housing starts, and weekly jobless claims.

Traders will also dissect on Wednesday the minutes of the Federal Reserve’s last meeting for central bankers’ views on when to start tapering their bond buying, as well as their outlook for the economy.

For more, read Bloomberg Economics’ full Week Ahead for the U.S.

Asia

The Reserve Bank of New Zealand looks set to raise rates on Wednesday, putting it among the leading pack of central banks exiting from emergency stimulus support after the pandemic.

Japan releases GDP figures that are expected to show the world’s third-largest economy narrowly missing a double-dip recession, helped by a rebound in capital spending and higher government spending. Export numbers out later in the week will offer a sign of how quickly the global trade recovery is cooling. Price data on Friday are set to show inflation well below zero, following revisions to the CPI basket.

The Reserve Bank of Australia publishes minutes on Monday from a recent decision to stick with its tapering plans that could show how strongly that position is held given ongoing lockdowns in the country’s two biggest cities. Aussie jobs data will be closely scoured to see if those activity restrictions are starting to hit a labor market that had been improving quickly.

Central banks in Sri Lanka and Indonesia also have policy decisions.

For more, read Bloomberg Economics’ full Week Ahead for Asia

Europe, Middle East, Africa

Another upside surprise in U.K. consumer price gains this week will cement expectations that the Bank of England is likely to start raising interest rates as early as 2022. Economists expect inflation to moderate in July, a blip on the way to peaking well above the BOE’s 2% target later this year.

One central bank on the brink of raising rates is Norges Bank. Its policy makers are set to keep borrowing costs on hold on Thursday for the final time, before hiking them in September.

Meanwhile, officials in Rwanda, Namibia and Botswana meeting this week are all predicted to keep their rates on hold.

Data from Nigeria on Monday is set to show that inflation slowed for a fourth straight month in July, while remaining at almost double the 9% ceiling of the central bank’s target band. Still, policy makers are likely to leave the key interest rate on hold when they meet in September — Governor Godwin Emefiele has previously said the central bank can only effectively shift to taming price growth once it’s comfortable that output has reached “cruise level.”

Data from South Africa on Wednesday may show consumer-price growth in July slowed to the 4.5% midpoint of the central bank’s target band. That will give policy makers room to delay normalizing the benchmark rate when they meet next month, after the damage caused by July’s deadly riots and the continued impact of the coronavirus pandemic saw policy makers adopt a less hawkish stance.

For more, read Bloomberg Economics’ full Week Ahead for EMEA

Latin America

Lima unemployment data for June to be posted Monday may show a fourth straight decline as the pandemic and lockdown restrictions ease further. Nonetheless, the labor market in Peru’s capital is hardly back to a pre-pandemic footing.

Look for export-import data reported Monday to show Brazil remains on track to post a record annual trade surplus in 2021 amid booming overseas demand.

After a resurgence of the virus in Argentina checked early second-quarter growth, real economic activity likely rebounded in June, while a jump in global commodity prices is fueling a rebound in trade, reports Thursday are expected to show.A year after the depth of the region’s economic collapse — the contractions seen in the second quarter of 2020 ranged from “record-setting” to “worst-in-decades” — the April-June 2021 GDP reports should flip that script.

Mexico, first to report last month, clocked in at a year-on-year 19.7% advance to set a new standard in a data series dating to 1989. This week, Colombia, Chile and Peru can be expected to shatter long-standing quarterly growth records as well, although only Chile is near regaining pre-pandemic output.

For more, read Bloomberg Economics’ full Week Ahead for Latin America

More stories like this are available on bloomberg.com

Subscribe now to stay ahead with the most trusted business news source.

©2021 Bloomberg L.P.

View Article Origin Here

Related Articles

Back to top button