The global economic landscape is witnessing notable shifts as China's industrial sector drives a stronger-than-expected recovery, while European markets face challenges. In December, UK retail sales saw an unexpected decline, contrasting with China's promising growth. The country's full-year growth for 2024 reached 5.0%, slightly surpassing the forecast of 4.9%, meeting the official target amidst ongoing stimulus measures. Meanwhile, the Euro remains under pressure due to expectations of further rate cuts by the European Central Bank, with the EUR/USD staying defensive near 1.0300 during the European session on Friday.
China's economic stability has been significantly bolstered by its robust industrial sector. The nation's stimulus measures, as noted by UOB Group's economist Ho Woei Chen, have played a crucial role in this stabilization.
"China’s stimulus measures have continued to stabilise its economy."
UOB Group's economist Ho Woei Chen
The resurgence in demand for the US Dollar adds another layer of complexity to the global market dynamics. A cautious optimism pervades the market mood, with the US Dollar finding its footing. This resurgence has negatively impacted currency pairs such as the EUR/USD, which has been defensive in recent sessions.
Donald Trump's return to the White House is further influencing the trading environment. The anticipation surrounding potential tax cuts and decisions concerning the Federal Reserve looms large. The industrial sector has witnessed frontloading of production and exports in preparation for Trump's second term, contributing to strong manufacturing output. However, this surge is not expected to be sustainable, with a possible payback anticipated later this year.
"Frontloading of industrial production and exports ahead of Trump’s second term likely contributed to the strong manufacturing output but this is unlikely to be sustained and we expect some payback later this year."
UOB Group's economist Ho Woei Chen
This cautious outlook is reflected in China's growth forecast for 2025, which remains at 4.3%. Experts await further clarity on Trump's plans regarding potential tariffs and additional fiscal boosts from China before adjusting these projections. The People's Bank of China (PBOC) may also delay rate cuts due to depreciation pressure on the Chinese Yuan (CNY), underscoring the careful navigation required in this uncertain climate.
Private consumption in China exhibits moderation, with a tilt towards government-subsidized programs. The property market continues to stabilize, supported by ongoing stimulus measures.
"Private consumption was more moderate and tilted towards consumption under the government’s subsidy program while the property market continued to stabilize on the back of stimulus measures."
UOB Group's economist Ho Woei Chen