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China offers hint of growth prospects, Germany expects more bad news
China's economy, the second largest in the world, gets a spot check this week with a barrage of data due that should indicate how successful Beijing has been in supporting growth.
It may be even more pertinent than usual, given that the Federal Reserve has been surprisingly cautious about the U.S. economy and with euro zone powerhouse Germany suddenly appearing to stagger.
The world economy may not be on the brink of falling back into recession, but it is hardly on fire.
The International Monetary Fund, for example, has lowered its growth expectations for this year and next in Europe, Japan and China, among others.
Since April, Beijing has taken steps to keep up growth, including cutting reserve requirements for selected banks and hastening construction of railways and public housing.
Some of this week's Chinese data - inflation, trade, bank credit, money supply and FX reserves - will pave the way for third quarter gross domestic product numbers on October 21.
Annual GDP growth quickened slightly to 7.5 percent in the second quarter from 7.4 percent in the previous three months, but the economy was losing steam going into the third quarter as the property market slowed.
Analysts at UBS are expecting a mixed picture, with better export numbers offset by weaker import numbers, softer inflation and modestly slower credit growth.
That points to continuing slack domestic demand with year-on-year GDP easing back some more. UBS is expecting growth of 7.1 percent, while HSBC has penciled in 7.3 percent.
Either number would signal the slowest year-on-year expansion in China since the first quarter of 2009 and the fourth quarter of 2001 before that.
"Given the ... downside risks to growth and clear signs of a negative output gap, we expect more easing measures in the coming months to stabilize growth. These could be in the form of monetary, as well as fiscal policies and help steady economic activity in the coming months," economists at HSBC said.
Euro Zone Drag
If China is looking for an expanding destination for its exports, it can probably skip the euro zone.
Already struggling with no growth and minimal inflation, the 18-member currency bloc has recently seen a new danger as its main economic engine, Germany, sputters.
Last week, industrial orders and output data showed the steepest drops in more than five years while the country's dominant export sector suffered a plunge.
More bad news is expected on Tuesday when the ZEW research group issue its economic sentiment survey.
This has fallen every month since December when the index -- which primarily indicates direction -- hit 62. Reuters polls suggest the latest number will be just 3.
"The industrial and trade numbers that we have had in the recent week or two on Germany have been pretty awful," James Knightley, senior economist at ING, told clients.
"It does highlight concerns that the German economy really is slowing quite markedly and that the euro zone as a whole could slip into recession."
European Central Bank chief Mario Draghi will speak mid-week and may repeat his calls for countries with available budget surpluses to increase spending to boost the euro zone economy. He means Germany.
Federal Reserve policymakers will meanwhile be out in force, with Janet Yellen, who chairs the U.S. central bank, speaking in Boston on Friday.
With the Fed set to finally end its program of bond-buying with new money at its next interest rate setting meeting on October 18-19, keen attention will be paid to any hints about the direction of interest rates.
This will especially be the case after some mixed messages in the past week about what is expected and the release of relatively dovish minutes of the last meeting.
Fed Vice Chairman Stanley Fischer said financial markets had it "more or less" right that there would be a hike in the middle of next year. But St. Louis Fed President James Bullard said investors and the central bank were far apart on their view of where interest rates will be at the end of 2015.
[Source: By Jeremy Gaunt, Reuters, London, 12Oct14]
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