As China reopens and data surprises, economists are starting to get less gloomy – CNBC

by | Jan 16, 2023 | Financial

The European Central Bank is expected to continue raising rates aggressively in the short-term as the euro zone economy proves more resilient than anticipated.Haussmann Visuals | Moment | Getty ImagesAfter China’s reopening and a deluge of positive data surprises in recent weeks, economists are upgrading their previously gloomy outlooks for the global economy.Data releases last week showed signs of inflation slowing and less severe downturns in activity, prompting Barclays on Friday to raise its global growth forecast to 2.2% in 2023, up 0.5 percentage points from its last estimate in mid-November.”This is largely driven by the 1.0pp increase in our China growth prediction to 4.8% from last week, but also reflects a 0.7pp increase for the euro area (to -0.1%, largely on a much better Germany) forecasts, and, to lesser extent, upgrades of 0.2pp for the US (to 0.6%), Japan (to 1.0%) and the UK (-0.7%),” said Barclays Head of Economic Research Christian Keller.”The U.S. would still experience a┬árecession, as we predict slightly negative growth in three quarters (Q2 -Q4 2023), but it would be quite shallow, as annual 2023 GDP growth would now remain positive.” U.S. December CPI edged down 0.1% month-on-month to notch 6.5% annually, in line with expectations and mostly driven by falling energy prices and slowing food price increases.However, Keller suggested a more important gauge of how the U.S. economy is faring, and how the Federal Reserve’s monetary policy tightening might unfold, was the December Atlanta Fed Wage tracker.┬áThe estimate last week supported the previous week’s average hourly earnings (AHE) data in indicating a sharp deceleration of wage pressures, declining by a full percentage point to 5.5% year-on-year.Philadelphia Fed President Patrick Harker, a new voting member of the Federal Open Market Committee, said last week that 25 basis point interest rate hikes would be appropriate moving forward. A similar tone was struck by Boston Fed President Susan Collins and San Francisco Fed President Mary Daly.The central bank has been raising rates aggressively to rein in inflation while hoping to engineer a soft landing for the U.S. economy. In line with market pricing, Barclays believes the balance on the FOMC has now shifted toward 25 basis point increments from February’s meeting onward.Where the British bank differs from market pricing is in its expectations for the terminal rate. Barclays projects the FOMC will lift the Fed funds rate to 5.25% at its May meeting before ending the hiking cycle, exceeding current market pricing for a peak of ju …

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