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Economy Watch

Kia ora,

Welcome to Monday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

And today we lead with news the world seems to be bracing for the uncertainties of the incoming US Administration, but it is starting from a generally resilient position (although that doesn't seem to include New Zealand).

But first, the week ahead will be dominated locally by our Q4 CPI release. Markets expect a 2.1% year-on-year rate, only marginally less than the Q3 rate of 2.2%. We will also get another full dairy auction on Wednesday too. The REINZ will release its December data sometime, maybe Tuesday. And we can expect other banks to react to ASB's home loan rate reductions.

Elsewhere, there will be more PMI releases, GDP releases for South Korea and Taiwan, and rate decisions from Norway, Turkey, Malaysia, and the big one from Japan at the end of the week. Data out of Australia will be minor this coming week. But all the while, important earnings reports will flow on Wall Street

Over the weekend, China said new home prices in 70 cities dropped by an average -5.3% in December from a year ago, slowing from a -5.7% decline in the previous month. This was the softest fall since August but is the 18th consecutive month of decreases. "Second hand home" prices fell faster, and there were no cities where prices rose. The string of decreases come despite efforts from Beijing to reduce the impacts of a prolonged property weakness, efforts such as lowering mortgage rates and cutting home buying costs.

China released data that showed electricity production was only up +0.6% from a year ago in December. For the whole of 2024 the rise was +4.6%. The year ended weakly with neither November nor December rising more than +1%. This is a telling indicator of real activity. (This is the metric then-to-be Premier Li Keqiang famously referred to after dismissing their GDP results.)

But they said industrial production was up +6.2% in December. Retail sales were up +3.7%. And through all this they claimed Q4-2024 GDP rose +5.4% and its fastest pace of the year. Frankly, that is hard to see based on the components that make it up. Apparently it is based on export growth, but as good as that is, it is hard to see that behind the claimed growth. But the links here, plus this one, and they should be enough to inspect their data and for you to make your own judgement.

Singapore’s exports surged +9% in December from the same month a year ago, after a +3.4% gain in November. This exceeded the +7.4% rise in November and is the fastest pace in export growth since August. A key driver is a sharp rebound in non-electronic product sales.

Globally, the January update of the IMF's World Economic Outlook estimated global growth to be +3.3% in 2025, a slight increase from the 3.2% forecast in October. The rise was driven by the US which offset downgrades in other major economies. Growth for 2026 is also expected at 3.3%, unchanged from the previous projection.

They say the US faces upside risks that could bolster growth in the near term, but other nations remain exposed to downside risks amid heightened policy uncertainty. The US economy is now forecast to grow by 2.7% in 2025 (vs 2.2% in October), and China's GDP growth was revised slightly higher to 4.6% (vs 4.5%).

Conversely, the Euro Area's growth projection was downgraded to 1% (vs 1.2%), while Japan's growth forecast remains steady at 1.1%. Projections for India’s GDP growth were maintained at 6.5%. Australia is expected to grow +2.1% in 2025 and +2.2% in 2026. New Zealand doesn't get a mention in these forecasts.

Underscoring the US growth upgrade, American housing starts surged by almost +16% from the previous month to an annualised rate of 1.5 mln units in December, the most since March 2021 and well above the expected 1.32 mln level.

And industrial production in the US was up an outsized +0.9% in December and well above the +0.3% expected rise to the strongest increase since February. It was helped by the end of strikes, and a jump in the production of aircraft.

But there is a bump in the road about to start: the latest US debt limit deal is about to expire very soon. The new US Administration will have to grapple with that in its early days. Trump wants no debt limits to constrain his tax cuts and spending plans, but his hardline conservative supporters won't agree to more deficits. This will be interesting.

Trump has already had an effect on the US Federal Reserve, getting them to withdraw from the 144 member NGFS. of which the RBNZ.

And separately, we should probably note that the aluminium price is at a two month high, and heading toward a two year high.

The UST 10yr yield is now at just on 4.62%, and up +2 bps from this time Saturday.

The price of gold will start today at US$2702/oz and down -US$14 from Saturday.

Oil prices are down -50 USc at just under US$78/bbl in the US while the international Brent price is now just under US$81.

The Kiwi dollar starts today just under 55.9 USc and down -10 bps from this time Saturday. Against the Aussie we unchanged at 90.1 AUc. Against the euro we are down -10 bps at 54.4 euro cents. That all means our TWI-5 starts today just on 66.8 and down -10 bps from yesterday, but up +20 bps from a week ago.

The bitcoin price starts today at US$104,704 and down -0.3% from this time Saturday. Volatility over the past 24 hours has been modest at +/- 1.1%.

You can find links to the articles mentioned today in our show notes.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again tomorrow.