Here’s our summary of key economic events over the weekend that affect New Zealand, with news of important transitions underway, even as current conditions remain troubling.
At the end of last week, equity markets everywhere rose to new record highs as investors looked past the political unrest in Washington, now just a sideshow, secure in the knowledge this is just ‘reaction’ and the real long term event happened in Georgia. There was a red-to-blue transition that will likely be repeated in coming years in neighbouring states. Safe haven investments like US Treasuries and gold sold off, with yields rising sharply. Investors expect the incoming US Administration will pass bigger fiscal stimulus and infrastructure spending plans, and get an effective vaccine program underway.
Meanwhile, the IMF says China’s economic growth will rebound +7.9% in 2021 after dipping to +1.9% in 2020, and then expand in the +5% range over the following 15 years.
But more importantly, they are calling out the slow pace of structural reform in China and its reliance on debt and Beijing stimulus for this growth. They report that central government debt will grow to +113% of GDP by 2025 and that ignores provincial and local government debt. The IMF implores than to shift away from growth based on massive infrastructure projects, to one driven by consumer demand and supported by a much better social safety net system.
The IMF said China needs to find a way to wind down problem banks, and it warns of the ‘decreasing quality’ of Chinese corporate debt. Foreign investors are also becoming wary of yuan bonds.
China has reported rising foreign exchange reserves, now up to US$3.217 tln as at the end of December 2020 and almost +2% higher in a year. These reserves are now at a five year high.
Chinese authorities are succeeding in holding iron ore and coal prices from rising further, but they are not managing to get them lower following the recent sharp run up. However they are also not succeeding in getting key imported food commodity prices from their sharp rises, which are continuing. And this is despite sharp falls in local pork prices recently.
Taiwan’s export prowess continued in December with another +12% year-on-year rise and boosting their trade surplus to +US$5.8 bln for the month. Helping that was a slowdown in their imports.
The US has reversed its threat to impose tariffs on France in retaliation for France’s digital services tax on the tech giants.
And staying in the US, non-farm payrolls fell in December in an unexpectedly disappointing result. Analysts had expected a +100,000 rise but in fact they fell -140,000. It is a backsliding of the minor economic recovery that took place over their summer and autumn. But markets aren’t worried; there is an opportunity for 2021 to be the year of a considerable bounce-back, thanks to monetary and fiscal stimulus that will be more flexible and forthcoming after January 20, the delayed effects of buoyant…
Go to the news source: IMF’s China review warns on dangers of unsustainable debt-based growth; Taiwan’s…