WASHINGTON: A likely moderation of US economic growth in the fourth quarter ended an otherwise solid stretch of activity over the final six months of 2023, feeding expectations the expansion will remain intact.
Economists project the government’s initial reading of gross domestic product (GDP) – the sum of goods and services produced – to show an annualised 2% increase, according to the median estimate in a Bloomberg survey.
That would follow the 4.9% third-quarter advance and mark the strongest back-to-back quarters of growth since 2021.
At the same time, inflationary pressures are becoming less pronounced.
A day after last Thursday’s GDP figures, the government’s personal income and spending report is seen showing the US Federal Reserve’s (Fed) preferred gauge of underlying inflation rose 3% in the year ended in December, in what would be an 11th straight month of waning annual price growth.
Slowing inflation has opened the door for US central bankers to lower interest rates this year, although many policymakers are reluctant to commit to such a move as early as March.
While the Fed wants to guard against a re-acceleration of inflation, a further softening of price pressures risks making policy even more restrictive.
Currently, the inflation-adjusted federal funds rate stands at its highest level since 2007, when the economy slipped into a recession.
Bloomberg Economics said: “Our forecast implies brisk 2.7% growth for full-year 2023 GDP, up from 0.7% in 2022.
“But we think growth will slow meaningfully in the first half of this year given fast labour-market cooling and concerns about credit availability and the sustainability of consumer demand.”
Fed officials will observe a blackout period in the coming week ahead of their Jan 30-31 policy meeting.
Last Friday’s income and spending figures are expected to show outlays, before adjusting for price changes, increased more in December than a month earlier.
That would cap off a healthy holiday-shopping season and indicate demand had some momentum entering the new year.
Further north, the Bank of Canada is widely expected to hold its benchmark overnight rate at 5% on Wednesday for a fourth straight meeting.
And elsewhere, the European Central Bank (ECB) and the Bank of Japan (BoJ) may focus investors watching for signs of the first rate move from each of them, while Turkiye’s central bank could deliver the final hike of its cycle.
The BoJ meets as speculation over its first potential rate increase since 2007 gains momentum.
None of the economists surveyed by Bloomberg expects a move this time, as authorities are still assessing the impact of a New Year’s Day earthquake in the nation’s northwest.
Instead, the focus will fall on how governor Kazuo Ueda describes progress toward achieving a positive wage-price cycle and any more signals of a hike in the spring.
Japan gets trade statistics on Wednesday that may show exports rebounded in December, possibly putting the economy back into expansion in the fourth quarter. Tokyo consumer inflation ends the week.
Elsewhere, China’s prime rates are expected to be left untouched at the start of the week, while 20-day export figures from South Korea will offer an early glimpse of global trade in January.
Later in the week, South Korea’s economic growth is forecast to have accelerated in the fourth quarter. Australia releases business confidence tomorrow and flash PMIs the following day.
Malaysia’s consumer inflation is seen steady at 1.5% in December with its central bank likely to keep rates unchanged on Thursday, and Singapore’s MAS also meets during the week.
Thailand and the Philippines publish trade data, and China releases industrial profits on Saturday.
For Europe, the highlight will be the ECB’s decision on Thursday. Officials, led by president Christine Lagarde, are set to keep rates unchanged at their first meeting of the year.
The governing council appears to be converging around a likely rate cut in June, while markets show a two-in-three chance the first reduction will come in April. Lagarde’s comments will be scoured for any hints on the timing of that first move.
The focus of economic data in the region will include initial readings of purchasing managers’ surveys of 2024 – due on Wednesday – with equivalent reports also coming out in Britain.
Germany’s Ifo business sentiment will be published on Thursday, giving an indication of whether the contraction Europe’s largest economy endured in the fourth quarter is poised to end. — Bloomberg
