China's economy rebounded faster than anticipated in the third quarter, but a stronger rebound in the long term will be hindered by persistent COVID-19 restrictions, a prolonged property slump and risks of a global recession.
Helped by a series of government actions, the world's second-largest economy grew 3.9% in July-September from a year earlier, official data showed, beating the 3.4% pace forecast in a Reuters poll and faster than the 0.4% growth in second quarter.
However, domestic demand eased towards the end of the quarter as rising coronavirus cases led to lockdowns, while export growth slowed and the key property sector cooled further, suggesting a full recovery.
Final consumption contributed 2.1 percentage points to GDP growth of 3.9%, while capital formation, or investment, and net exports contributed 0.8 and 1.1 percentage points, respectively.
In the nine months to September, China's urban per capita consumption adjusted for inflation fell 0.2% annually.
On a quarterly basis, GDP rose 3.9% versus the revised 2.7% decline in April-June and the expected 3.5% gain.
The economy was supported by manufacturing, with separate data showing industrial output in September rose 6.3% from a year earlier, beating expectations for gains of 4.5% and 4.2% in August.
A Reuters poll forecast China's growth slowing to 3.2% in 2022, far below the official target of around 5.5%, marking one of its worst performances in nearly half a century.
In a sign of lingering tensions, exports grew 5.7% from a year earlier in September, beating expectations but coming in at their slowest pace since April. Imports rose a weak 0.3%, below expectations for 1.0% growth.
Retail sales grew 2.5%, missing forecasts for a 3.3% gain and down from 5.4% in August, underscoring the still fragile domestic demand.
Specifically, catering sales fell 1.7% in September from an 8.4% increase in August due to stricter COVID measures.
For September, China's urban unemployment rate surveyed rose to 5.5%, the highest since June, with the unemployment rate for job seekers between the ages of 16 and 24 at 17.9%.
Month-over-month new home prices also fell for the second month in a row in September, reflecting ongoing homebuyer reluctance as indebted developers race to find ways to complete projects on time.
Policymakers have rolled out more than 50 economic support measures since late May, seeking to boost the economy to ease job pressures, though they have played down the importance of hitting their growth target, which was set in March.
2.U.K. Employment Situation
Unemployment RateThe UK unemployment rate rose for a second month and there were other signs in the data showing inflation in the labor market starting to cool as the economy stumbled, including an increase in older people looking for work.
But the Bank of England (BoE) is likely to pay attention to the strongest rise in base wages excluding the period around the COVID-19 pandemic.
The unemployment rate increased to 3.7% in the three months to October from 3.6% in the three months to September. Vacancies in the period September to November on an annual basis for the first time since early 2021 when the UK was in lockdown.
But regular wages rose a stronger-than-expected 6.1% in the August to October period, the biggest gain since records began in 2001, excluding spikes during the COVID-19 pandemic that were distorted by lockdowns and government support measures.
Total payouts including bonuses also increased 6.1% annually, said the ONS.
The central bank is weighing signs that the UK economy may have slipped into a long recession with persistent inflation problems stemming from the labor market.
Both wage measures continued to lag behind inflation - which hit 11% in October - representing a further cut in household purchasing power.
The BoE is concerned that the recent shrinking of workers in the labor market will add to inflationary pressures in the economy.
The ONS said the rate of economic inactivity - or the share of people who are not working and not looking for it - fell in the three months to October to 21.5%, 0.2 percentage point lower than the previous three-month period.
This decline was driven in large part by more parents who considered themselves retired but were now looking for work.
However, the inactivity rate is still 1.3 percentage points higher than before the pandemic.
The Bank of Japan is considering revising upward its inflation forecast, a source familiar with the central bank's thinking said, in a move that could fuel market speculation that the BOJ will move away from aggressive monetary easing.
The revisions will include raising the outlook for core consumer inflation for fiscal 2022 to 3%. This is compared to the October projection which rose 2.9%. The BOJ will also raise its forecast for the next two years to near the target of 2% from the previous estimate of 1.6%.
Japanese households have been hit hard by rising prices, largely due to rising prices for oil and other raw materials due to rising global demand and Russia's invasion of Ukraine. The yen's weakness against other major currencies has also lifted import costs.
If inflation reaches 3% in the current fiscal year, it will be the highest level since the 1981 fiscal year when it hit 4% amid the oil crisis.
The BOJ will discuss potential revisions when the Policy Council meets on January 17 and 18, and the outcome will be announced in a outlook report to be released after the meeting.
The government and the BOJ aim to stabilize the year-on-year increase in the core consumer price index, which excludes fresh food, by 2% and realize wage increases that outpace continued inflation.
But government data showed on Friday that inflation-adjusted average monthly wages fell 3.8% in November from a year earlier, the steepest decline in more than eight years, amid higher food and energy prices.
Prime Minister Fumio Kishida this week called on business leaders to grant a pay rise, ahead of annual wage talks between management and unions starting this month.
While the core inflation rate remained above the BOJ's target of 2% for the eight months to November, some officials believe this was largely due to particular factors, saying the bank must continue with a very loose monetary policy to sustain the economy.
With domestic and foreign investors interpreting the increase in forecasts (inflation) as a prelude to changes in monetary policy, there are still concerns that it could lead to destabilization in financial markets.
At its last meeting in December, the BOJ changed policy, widening the trading range in long-dated Japanese government bond yields and surprising market participants who saw the decision as a rate hike.
Since then, investors have become sensitive to any move by the BOJ that could lead to easing policy easing.
4.U.K. Inflation Rate (December)
Inflation Rate (YoY)The Bank of England's chief economist warned Britain's high inflation rate could last longer than expected, despite falling energy prices in recent weeks and the economy on the verge of recession.
Huw Pill said a slowing UK economy and a sharp drop in European gas prices could help tackle the highest inflation rate in more than four decades. Threadneedle Street (BoE) expects headline inflation – which ran at 10.7% in November – to decline from the middle of this year.
However, he said risks remained of "sustained momentum", driven by workers demanding higher wages and businesses raising the prices of their products in response to high inflation rates.
Speaking at a conference in New York, Pill said: “The typical context prevailing in the UK – higher natural gas prices with a tight labor market, adverse labor supply developments and goods market congestion – creates the potential for inflation to remain stubborn. ”
In response to the highest inflation rate since the early 1980s, the central bank raised its main interest rate to 3.5% last month, up from 0.1% the previous year. Investors anticipate the central bank will hike rates again to 4% at its next monetary policy committee meeting in February.
Pill said that while natural gas prices have fallen, they remain significantly higher than historical levels, raising the threat of growing inflation as businesses and households can push to offset these costs by demanding higher wages and prices.
“The longer companies try to maintain real profit margins and employees try to keep real wages at pre-energy price shock levels, the more likely it is that domestically generated inflation will pick up on its own sustained momentum,” he said.
Rishi Sunak vowed to cut inflation in half by 2023, one of five promises in his first major speech this year. Inflation hit a 41-year high of 11.1% in October. However, inflation is already expected to fall to less than 4% by the end of this year by the Office of Budgetary Responsibility.
Amid higher interest rates from the Central Bank, economists warn of an economic slowdown and a sharp drop in house prices as families are squeezed by rising borrowing costs.
More than 1.4 million households face the prospect of a spike in borrowing costs when their fixed-rate mortgages expire this year, according to figures from the Office for National Statistics. The majority of fixed rate mortgages in the UK (57%) to be renewed were approved at rates below 2%, said the ONS.
Private renters have also faced rising housing costs, with rents rising at the highest level in the UK since records began in 2016.
Inflation Rate YoYInflation in the eurozone fell for a second straight month in December, but analysts don't expect that to trigger a change in tone from the European Central Bank.
Headline inflation, which includes food and energy costs, was 9.2% YoY in December, according to preliminary data from European statistical agency Eurostat. This follows November's headline inflation rate of 10.1%, which represents the first slight drop in prices since June 2021.
The euro area economy has been under immense pressure following Russia's invasion of Ukraine in February 2022, with energy and food costs soaring last year. In a bid to fight rising prices, the European Central Bank is raising interest rates four times in 2022 and has said it will likely continue to do so this year. The bank's prime rate currently sits at 2%.
Energy costs have fallen in Europe in recent months. Natural gas prices, for example, were trading around 72.42 euros per megawatt hour on Friday - much lower than their peak of 349.90 euros per megawatt hours in August.
Among the inflation components, energy continued to be the biggest driver in December, but fell from previous levels. Energy costs fell from 34.9% in November to around 25.7% in December, according to the latest figures.
Unemployment RateAustralia's unemployment rate held steady in November even as the economy added about 2,000 jobs a day, underscoring tight labor market conditions.
Last month's unemployment rate was 3.4% with employers adding 64,000 job positions, more than half full time, the Australian Bureau of Statistics said. Economists from ANZ and CBA expect the rate to remain at October's 3.4% level with a net gain of around 15,000 to 20,000 jobs.
Unemployment has been near 50-year lows for most of 2022 as the economy recovers after the loosened Covid restrictions combined with fewer foreign students and other short-term visa holders to produce a tight labor market.
During the September quarter, a record one in 30 jobs were vacant compared to a ratio of about half before the pandemic. Labor market strength will be closely watched by the Reserve Bank of Australia as it watches for signs of a wage surge that has so far failed to materialize in most sectors.
After eight rate hikes in as many months, the RBA board is not scheduled to meet again until February. Prior to today's jobs numbers, investors were torn between predicting another 25 basis point increase to 3.35% or a pause for the next meeting. Most of the labor market figures were upbeat, especially the increase in the participation rate by 0.2 percentage point to match the record 66.8% set at the start of 2022. Economists expect that rate to remain unchanged.
"The turnout rate increased by 0.2 percentage point to 66.8% in November, returning to the record highs seen in June 2022," said Bjorn Jarvis, head of labor statistics at ABS. "It's 1.0 percentage points higher than before the pandemic."
The recovery in those looking for work in post-pandemic Australia is different from the US, where more people have yet to return to the labor market, partly explaining the much faster wage growth in a country with similar unemployment rates.
The Australian women's participation rate also returned to its June record high of 62.4%. For men, it is 71.3%.
The workforce jumped to 13.77 million people last month, seasonally adjusted, hitting a new record. Unemployment and underemployment rates are around two-thirds of March 2020 levels before the pandemic.
Rising Covid cases have continued to drag on the economy, with those working less due to illness rising by 50,000 last month to 520,000, about a third higher than usual for the time of year, ABS said.
Monthly hours worked fell slightly to 1.9 billion.
Australia's treasurer, Jim Chalmers, welcomed the latest jobs figures, but said "Australia will not be immune to a volatile global economic environment driving higher global inflation and slower growth."
Among the states and territories, the ACT has the lowest unemployment rate. Last month it fell to 2.9% on trend from 3.1% in October, the ABS said. (Seasonally adjusted down to 2.5%)
Most states maintained their own trend, with New South Wales the lowest of the major states, remaining at 3.2% unemployment rate, while Victoria edged 0.1 percentage point higher to 3.6%.
Core consumer prices in the Japanese capital, a leading indicator of national trends, rose a faster-than-expected 4.0% in December from a year earlier, exceeding the central bank's 2% target for the seventh straight month in a sign of expanding inflationary pressures.
The increase, which is the fastest pace in four decades, is likely to support market expectations that the Bank of Japan (BOJ) can remove its massive stimulus by tweaking its yield curve control policy.
The increase in Tokyo's core consumer price index (CPI), which excludes fresh food but includes fuel, exceeded the median market estimate of 3.8% and the 3.6% rise seen in November, government data showed on Tuesday.
The last time Tokyo's inflation was faster was April 1982, when the core CPI was 4.2% higher than the previous year.
Tokyo's core CPI index, which excludes fuel as well as fresh food, rose 2.7% in December from a year earlier, improving from the 2.5% annual increase seen in November.
Tokyo's CPI rise raises the likelihood that national consumer inflation is likely to stay above the BOJ's 2% target in December.
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