The Urge To Surge

The US dollar pulled back, and long-term yields softened last week, but the economic surge has only just begun.  The more than 900k rise last month's non-farm payrolls and the jump in auto sales will set the tone for this month's economic data, and investors will get a taste of it next week. The US data will be robust in absolute terms but also relative to other countries.

France and Spain have already revised their growth forecasts this year, and Bundesbank President Weidmann hinted that it may do the same for Germany.  The market has written off Q1 and probably Q2 as well. 

Singapore is the first to report Q1 GDP.  It is expected to have expanded by around 1% after growing 3.8% in Q4 20.  It would be the slowest paces since the contraction in the first two quarters of last year. China will be the first of the large countries to report.  The world's second-largest economy appears to have slowed by half or more in Q1 after a 2.6% quarter-over-quarter pace in Q4 20.  March trade figures are due before the GDP figures, but other March data, including retail sales, industrial production, and fixed-asset investment, are released simultaneously.  

The key question is, what happens next?  China has taken measures, including discouraging loan growth (which will not be evident in the March lending figures) and other actions that could have a cooling-off effect on entrepreneurship. Can China find its mojo?  The IMF apparently thinks so as it revised its projection for Chinese growth this year to 8.4% from 8.1% made three months ago, and said that China's economy will generate 20% of the world's growth in the five-year period beginning this year.  

The IMF has caught up to market forecasts, but this year's growth is an aberration, and economists expect China's growth in 2022 and 2023 to fall below 6%.  As the shift from rural to the city is well advanced and the productivity catch-up gains largely captured, the growth impulse has slowed.  With two exceptions (2010 and 2017), Chinese growth has been slowing every year since 2007.  This year is an anomaly in the opposite direction of last year's, but the average over the two years is probably close to the new normal.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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