China's economic recovery picks up speed; FTSE 100 dips – as it happened

Graeme Wearden

from on 2021-01-18 16:51 (#5CZFJ)

Rolling coverage of the latest economic and financial news

Latest: Economists: Economic imbalances are worsening
China's GDP grew by 6.5% y/y in the fourth quarter, up from 4.9%
Economy expanded by 2.3% last year - weakest in decades
Factory growth up 7.3%, but retail sales slow to +4.6%

4.48pm GMT

And finally... a rather quiet day has ended with the FTSE 100 down 15 points, or 0.22%, at 6720 points.

That's its lowest closing point in nearly two weeks (although it was lower during Friday's trading session).

In a sign, if one was needed, that Europe is often lost without American direction, the markets essentially took MLK Day off this Monday.

Lacking a US intervention, broadly unimpressed with China's Q4 GDP rebound due to a drop in retail sales, and anxious about how Wednesday's inauguration is going to play out across the States, the European indices dozed through the session.

4.21pm GMT

Associated Press points out that China is getting closer to overtaking the US as the world's largest economy, in its take on today's GDP figures.

China's quick recovery brought it closer to matching the United States in economic output.

Total activity in 2020 was 102 trillion yuan ($15.6 trillion), according to the government. That is about 75% the size of the $20.8 trillion forecast by the IMF for the U.S. economy, which is expected to shrink by 4.3% from 2019. The IMF estimates China will be about 90% of the size of the U.S. economy by 2025, though with more than four times as many people average income will be lower.

Exports rose 3.6% last year despite the tariff war with Washington. Exporters took market share from foreign competitors that still faced anti-virus restrictions.

Retail spending contracted by 3.9% over 2019 but gained 4.6% in December over a year earlier as demand revived. Consumer spending recovered to above the previous year's levels in the quarter ending in September.

3.57pm GMT

Anxiety over tightening Covid-19 lockdowns are weighing on investors today, reports David Madden of CMC Markets:

The British government has closed the air corridors, so passengers arriving from outside the UK will need to show proof of a negative Covid-19 test as well as self-isolating once they arrive in the country. Last week, Portugal implemented harsher restrictions, France introduced a curfew from 6pm and it was reported the Berlin administration is also contemplating a curfew. China's localised lockdowns are increasing too. Tighter restrictions should lead to even worse economic pain that is being inflicted by the lockdowns.

Dr Michael Ryan, the WHO emergencies chief, cautioned the coronavirus will claim 100,000 lives per week very soon'. Governments won't want to be presiding over such numbers so it is likely that things will get worse before they get better on the lockdown front. The timing of the update from Dr Ryan is bad, as the distribution of the vaccine will be slowed down due to supply constraints.

3.52pm GMT

3.28pm GMT

Here's our economics editor Larry Elliott on China's GDP figures:

China's economy has posted its strongest growth in two years after completing a rapid recovery from the slump caused by the Covid-19 pandemic at the start of 2020.

Although the 2.3% annual increase in activity for the world's second biggest economy was its slowest since 1976, by the final three months of last year China was expanding at a faster rate than before the crisis.

3.26pm GMT

Back in the markets, the FTSE 100 is still down around 0.3% today at 6716 points (down 19 points today).

With Wall Street closed for Martin Luther King Jr. Day, investors are remaining cautious ahead of a busy week, including the US presidential inauguration on Wednesday.

With Joe Biden assuming the Presidency in two days, the new administration will seek to get to work quickly on its proposed $1.9 trillion stimulus package, the outcome of which could determine the path of travel for stock and bond markets. With such a slender majority in the Senate, Biden may be forced into compromise if he wants to get this over the line which may not be a massive blow in either case, depending on where that comes.

With vaccines being rolled out and the end of the nightmare in sight, countries around the world are turning their focus to the recovery. China is already well ahead in this regard, with data this morning showing just how far ahead they are.

*** Reminder - US equities are closed this afternoon due to Martin Luther King Jr. Day ***

3.22pm GMT

The head of the International Monetary Fund, Kristalina Georgieva, has warned that there is still a high degree of uncertainty' about the global economic outlook.

Georgieva also warned that countries must not withdraw their fiscal support too early (a nudge to finance ministers not to cut spending, even though debt levels are rising).

IMF's Managing Director Georgieva: It is important to recognize the high degree of uncertainty about global economic developments due to the resurgence of the virus.

IMF's Managing Director Georgieva: Countries should not withdraw fiscal support too early, we must calibrate measures with progress in ending the health crisis.

Andersson...told reporters it was clear the need for liquidity remained great, and she would consult with member countries on options for expanding liquidity.

I could not be more delighted to welcome Magdalena Andersson as the first woman to chair the International Monetary and Financial Committee.

Her deep experience and commitment to multilateralism are exactly what the IMFC needs today.

I look forward to working closely with her! pic.twitter.com/IEVuLN8bOb

2.21pm GMT

Metal prices have risen today after China reported faster growth than forecast for 2020.

The China data was pretty robust, not any great surprises there but just confirmation that China is back on track and that is a solid underpinning for metals."

2.01pm GMT

In the Republic of Ireland, the number of people claiming jobless benefits because of the pandemic has jumped by 15% in a week.

Nearly 460,000 people received the Pandemic Unemployment Payment this week, new government figures show. That's an increase of 61,715 on the previous week, the Department of Social Protection reports.

The sector with the highest number of people receiving PUP this week is Accommodation and Food Service activities (110,351). This is followed by Wholesale and Retail Trade (73,382) and Construction (56,217).

The sector that has seen the largest increase this week is Construction with 56,217 people receiving a PUP payment tomorrow. This has increased from 32,152 recipients last week which is attributed to the Level 5 restrictions imposed on the sector on the evening of Friday, 9th January.

1.24pm GMT

Supermarkets face increased inspections from local councils to make sure they are Covid-19 secure amid a push from the government to clamp down further on coronavirus transmission.

Local government officials have been asked by ministers to target the largest supermarkets for inspection to ensure companies are enforcing mask wearing, social distancing and limits on shopper numbers.

UK supermarkets face more inspections over Covid-19 compliance https://t.co/VhlrjnbwkJ

12.51pm GMT

Germany's central bank has warned that its economy would suffer a sizeable setback" if coronavirus curbs are extended again.

In its latest monthly report, the Bundesbank said.

If infections failed to ease significantly and current restrictions on economic activity were to persist or even be tightened, there could be a sizeable setback."

Price growth in Europe's largest economy is likely to be clearly positive" this month for the first time in half a year, Bundesbank says https://t.co/eCyjMXLse7

12.42pm GMT

Back to China... and Matthew Cady, Investment Strategist at Brooks Macdonald, says China achieved a very strong end to the year", growing at a faster rate than before the COVID-19 pandemic hit.

China's rebound from the COVID-19 pandemic has continued to be quicker and stronger than many forecasters had expected during Q4.

Following the impact from the virus in Q1 last year, the strength of the economic recovery in the subsequent three quarters of 2020 has been nothing short of remarkable. The pace and scale of the improvement reflects a very effective public health and broader economic policy response, led by China.

12.13pm GMT

The US dollar has touched a one-month high today, shaking off some of its recent weakness.

The greenback strengthened following a Wall Street Journal report that nominated-Treasury secretary Janet Yellen will tell a Senate confirmation hearing that the United States does not seek a weaker dollar.

The United States doesn't seek a weaker currency to gain competitive advantage.

We should oppose attempts by other countries to do so."

12.00pm GMT

Michael Pettis, finance professor at Peking University, has written an interesting thread about China's GDP figures.

He explains how Beijing's stimulus push has pumped up unhealthy, non-productive' areas of the economy which it had previously tried to curb, making China more unbalanced than before the pandemic:

1/16

It is a little frustrating to see the response many analysts had to the GDP growth data Chinese released today. These numbers aren't especially good, and they certainly shouldn't have been surprising. Back in April and May, when most analysts...https://t.co/3bWjc5oEN2

3/16

I know? Because I knew that while most of the healthy sources of Chinese growth would contract (except for exports, which would expand given Beijing's intense supply-side response to the impact of Covid-19), Beijing was going to respond to a significant...

5/16

needed for domestic political ends.

And that's exactly what happened. While GDP grew by 6.5% in the fourth quarter, even with substantial tailwinds its retail sales measure - a proxy for consumption - was only up 4.6%, and it was down 3.9% overall in 2020.

7/16

by 3-4 percentage points this year, driving it almost back to its nadir in 2010-11. There is no way that this can be seen as good news, and is confirmed by the fact that while exports were up 3.6% in 2020, imports were down 1.1%. By the way those who say China's trade...

9/16

promise that external circulation" would be used to shift the Chinese economy towards internal circulation", what actually happened was a huge shift from internal to external circulation.

That isn't what anyone wanted, and the fact that more than 100% of...

11/16

rising by 25 percentage points, roughly 3-4 times its previous year's increase. Second, that its trade surplus must soar, putting huge pressure on the rest of the world, and of course that happened too.

This means that China must reverse the consequence of 2020 as...

13/16

with 6-7% GDP growth or whether the authorities will demand more. If the former, the debt ratio should remain flat.

But without a serious - and politically difficult - push by Beijing, it isn't clear that household income growth will even keep up with GDP growth...

15/16

It performed badly, like the rest of the world, and it is only because Beijing sharply increased all the things it has been trying to rein in that the GDP measure was able to rise. That's like saying that if I can run faster after smoking a big bowl of crystal...

16/16

meth, it means I am healthier than I thought. To say that China was the only major economy to grow in 2020, in other words, is only to say that we are unable to distinguish between GDP and the economy.

11.21am GMT

China's forecast-beating growth hasn't stirred much excitement in Europe's stock markets.

The Europe-wide Stoxx 600 is flat this morning, with anxiety over the Covid-19 pandemic tempering optimism about the prospect of an economic revival.

The (infection) numbers seem to be decreasing, which is good, but we are still a long way from where we want to be."

The very strong rally enjoyed across the global stock markets now appears to be running out of steam as rising Covid-19 infections have hit sentiment hard on Monday.

In addition to the higher infection rates, with more lockdown restrictions in place, stocks have been hit by other factors such as lowered consumer spending and is unlikely to improve during the first quarter of this year.

10.49am GMT

Music news: British songwriter and producer Ian Levine has sold his rights to a string of smash hits by pop group Take That.

The deal covers producer royalties to tracks from the group's 1992 debut album Take That & Party - which was certified platinum twice in the UK - including A Million Love Songs, Could It Be Magic and I Found Heaven.

10.24am GMT

Shares in supermarket giant Carrefour have dropped 6% after the French government firmly rebuffed a takeover offer from Canada's Alimentation Couche-Tard.

My answer is extremely clear: we are not in favour of the deal

The no is polite but it's a clear and final no."

9.24am GMT

Shares in telecoms operator BT have dropped by over 2% this morning after it was hit by a 600m compensation claim.

British telecoms operator BT is facing a claim for almost 600m lodged by a consumer campaign group, which says the company failed to compensate fixed-line customers, many of them elderly, for overcharging.

The group, Collective Action on Land Lines (CALL), says the former monopoly failed to make up for increasing prices for customers over several years even though costs for providing the service were falling.

9.07am GMT

In the City, the FTSE 100 index has made a very subdued start - down 12 points or 0.2% at 6722.

UK property companies and builders are rallying, with British Land up 2.5% and Persimmon gaining 2.1%. They should benefit if the UK's vaccination rollout allows the economy to reopen later this year, with the government hoping to offer all adults a first dose by September.

The FTSE100 remains up by just over 4% in the year to date, but vaccine rollout optimism and hopes of economic recovery have switched to the back burner for the moment given these other considerations."

8.38am GMT

China's stock market has rallied after today's growth figures were released, with the CSI 300 closing 1.1% higher, at 5518.

That lifts the index back towards the 13-year high set last week.

An upbeat China Q4 GDP reading sent mainland and HK stocks higher, but failed to lift stocks in the rest of Asia:
- CSI 300 (+1.20%)
- Shanghai Composite (+0.91%)
- Hang Seng (+0.65%)
- Nikkei 225 (-1.01%)
- ASX 200 (-0.78%)
- Straits Times (-0.80%)

Despite the latest dip in retail sales, we see plenty of upside to consumption as households run down the excess savings they accumulated last year.

Meanwhile, the tailwinds from last year's stimulus should keep industry and construction strong for a while longer."

8.32am GMT

Meanwhile in the UK, house price have dropped as the temporary freeze in stamp duty nears its end -- meaning some buyers could face an unwelcome tax bill.

Average property prices fell by 0.9%, or nearly 3,000, in January, according to Rightmove as sellers tried to find a buyer before the stamp duty holiday ends on 31st March.

8.19am GMT

Several analysts are concerned that China's economy remains unbalanced, as last year's recovery was driven by factory growth rather than consumption.

Robert Ward of the International Institute for Strategic Studies tweets:

China's Q4 GDP up 6.5% YoY ->full-year 2020 growth to 2.3%. Optics good for Xi in run-up to July's CCP 100th anniversary: CN only major economy to grow in 2020, Q4 gives strong statistical hand-off to Q1 print. But structural problems remain, not least reliance on debt for growth

Real GDP expanded by a stronger than expected annual rate of 6.5% in Q4 up from 4.9% in Q3. It meant that for the year as whole, China's economy was one of the few global economies which recorded positive growth of 2.3%.

It was also encouraging industrial production growth accelerated to an annual rate of 7.3% in December. Consensus forecasts had been looking for a marginal slowdown in the pace of IP growth. However, it was not all good news for China's economy.

#China Q4/20 GDP +6.5% yoy (+4.9% in Q3)
In December industrial production +7.0% yoy, real retail sales +3.1% (our own estimate).

Recovery continues, but imbalances continue to worsen. This year should see clear clampdown on indebtedness, real estate investment etc. Hopefully. pic.twitter.com/WFeb0OVxa8

8.02am GMT

China's economy is now growing faster than before the pandemic, points out the Financial Times:

The Chinese economy grew 6.5 per cent in the fourth quarter of 2020, a faster rate than before the coronavirus pandemic that easily outpaced the expected performance of other big countries.

Gross domestic product growth for the final quarter beat expectations, according to official data released on Monday, with the Chinese economy expanding 2.3 per cent for the full year as industrial production continued to drive the country's recovery.

China has more than returned to trend growth," said Raymond Yeung, chief economist for Greater China at Australia and New Zealand Banking Group. The strong rebound means authorities can prioritize structural reforms rather than economic reflation" in 2021, he said.

The V-shaped recovery was based on successful control of Covid cases and fiscal and monetary stimulus which boosted investment in real estate and infrastructure. Growth was further spurred by overseas consumer demand for medical equipment and work-from-home devices, with exports expanding 3.6% in 2020 compared to the previous year.

That made the country the only major economy in the world to eke out an expansion, while others, facing a voracious virus onslaught, contracted.

China's accelerating economic rebound, largely owing to the government's drastic measures to contain the virus, will help boost the confidence of all other economies where a resurgence of infection cases is still taking tolls.

China's #GDP topped 100 tln yuan for first time, reaching 101.59 tln yuan with 2.3% y-o-y expansion in 2020, said NBS official on Mon. It is estimated to account for 17% of global total for the year, with #China expected to become only major economy with positive growth in 2020. pic.twitter.com/hKVeXNXo8N

7.38am GMT

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

China's economy continues to recover with 2.6% QoQ GDP growth in Q4 and 6.5% annual growth. China is only major country to report positive growth rate in 2020; industrial production has exceeded expectations, while consumption has been a bit slower to recover #macrobond pic.twitter.com/FULzQCI0yG

The national economy recovered steadily, employment and living standards were ensured forcefully, and the main goals and tasks of economic and social development were accomplished better than expectation.

Industrial Production rose by an impressive 7.30% as the rest of the world's insatiable demand for Made in China showed no signs of slowing down. By contrast, domestic data still showed the caution that has been prevalent throughout the year.

Retail Sales for December rose 4.60% versus 5.50% expected, a cause for joy in any other country but China. That likely reflects the Covid-19 restrictions in parts of the country and the freezing weather that has sent energy prices soaring.

European Opening Calls:#FTSE 6725 -0.16%#DAX 13749 -0.28%#CAC 5592 -0.36%#AEX 650 -0.21%#MIB 22214 -0.75%#IBEX 8223 -0.10%#OMX 1951 -0.21%#STOXX 3587 -0.35%#IGOpeningCall

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