A World Tour of Economic Data

From European inflation to Chinese monthly data and Indian GDP, data releases abound of late. Here we will round them up, in a world tour of sorts, sharing brief thoughts on each. The general picture, though, is one of continuing overall inflation improvement and growth, even if a few soft patches exist. Let us show you.

In Europe, the headliner is inflation. Specifically, that eurozone inflation continues to decelerate—quickly. Fast-rising prices have long dominated headlines in America, Britain, Australia, Canada and, yes, the eurozone. But as is also the case globally, eurozone inflation rates have cooled significantly lately. As Exhibit 1 shows, the eurozone’s November Harmonised Index of Consumer Prices (HICP) has fallen all the way back to 2.4% y/y from its 10.6% October 2022 peak. It is now at its slowest rate since July 2021. Energy prices, which led the way higher in 2022, are now driving inflation’s slowdown, falling over -11% y/y the last two months.^[i] But even excluding energy (and food, alcohol and tobacco), core HICP is running at just 3.6% y/y, a vast improvement from March’s 5.7% peak. And although inflation remains above long-term averages—and the ECB’s 2% target—falling money supply trends point to still-slower rates to come, with some economists even starting to fear an overshoot to too-low inflation.

Exhibit 1: Europe’s Big Fear Has Faded

Source: FactSet, as of 12/5/2023. Eurozone HICP and HICP excluding energy, food, alcohol & tobacco, January 1997 – November 2023.

Lately, it seems fading inflation—in Europe and globally—has gotten lost amid signs of recent economic weakness rekindling recession worries. But we view this as a classic fear morph—and unappreciated market tailwind. Headlines’ downplaying clear improvement in Europe’s big fear the last couple years, only to recycle another stocks long ago pre-priced, just goes to show the bull market has further to climb up the wall of worry.

Next stop: China, where few seem to notice economic reacceleration. The general consensus toward the Middle Kingdom’s economy is exceedingly gloomy, fixated on real estate weakness, fearing it will spur debt deflation and a hard landing. Notably to us, though, while these fears have reigned for years, economic activity is proving more resilient. The latest Chinese data show industrial production grew 4.6% y/y in October, faster than September’s 4.5%, while retail sales accelerated to 7.6% from 5.5%.

Exhibit 2: Chinese Growth Weathering the Storm

Source: FactSet, as of 12/5/2023. China industrial production and retail sales, March 2012 – October 2023.

Although China’s official manufacturing purchasing managers’ index (PMI) continued to hover just below 50 in November, suggesting contraction, that hasn’t kept the sector’s actual output from expanding every month this year—a reminder that PMIs measure only growth’s breadth, not its magnitude. Besides, the non-manufacturing PMI has exceeded 50 all year, suggesting ongoing expansion for sectors comprising the majority of Chinese GDP. And Tuesday, the Caixin Services PMI, reflecting China’s private sector more than its state-owned enterprises, showed a November rise to 51.5 from October’s 50.4, beating expectations.^[ii] Importantly, new orders—a sign of future output—headed higher.

In our view, Chinese growth appears to be increasingly able to weather its real estate storm, even as the threat recedes (with some targeted help from Beijing). China continues chugging along, adding to global growth. We think this is a major ingredient for reality worldwide to exceed widespread expectations to the contrary.

Beyond China, a visit to fellow Emerging Markets heavyweight India reveals a continued boom. Q3 GDP grew 7.6% y/y, exceeding all estimates and extending last quarter’s strength. This makes it the fastest-growing major economy in the world and a big support to global growth. Now, the Reserve Bank of India (RBI) is pushing to cool the expansion. It cites unsecured consumer lending (credit cards, small personal loans) growing in excess of 25% over the past year, far outpacing household incomes.^[iii] Hence, the RBI is hiking rates—and financial institutions’ capital requirements—to rein in booming credit creation it views as increasingly risky, particularly with delinquencies on the rise.

Whether lenders pass on the costs or take the margin hit, unsecured borrowing seems likely to slow. However, the RBI left capital requirements unchanged for secured lending—e.g., for housing and cars—and, at more than three-quarters of the retail loan market, this form of credit far outweighs unsecured borrowing. While we will continue to monitor the impact on loan growth—and delinquency rates—the overall effect this has on India’s economy appears minimal to us. At a stock market level, it is worth noting Financials are a huge share of India’s markets (more than a quarter of market capitalization), so the impact on profitability is worth keeping an eye on going forward.^[iv]

Lots of headline fears swirl, drawing attention, but don’t lose sight of the bigger picture—and good news—that many miss.