Two Worlds
Yuan takes off, US debts balloon, China rebounds, US in rolling recession, China FDI record highs, Vietnam good value, ASEAN and RCEP rising, 1.5 degrees is “currently not plausible,”
UPDATE: IMF reports China's growth outlook sharply higher for 2023 to 5.2%. Chinese rebound will contribute a quarter of global growth in 2023. China's foreign direct investment inflows are expected to hit a new record in 2023 and will probably rank first in the world.
US credit card annual percentage rates are already near 20% and set to climb higher as more consumers use credit to pay for inflation spiral on necessities, like food and rent. Charles Schwab believes the U.S. economy remains in the midst of a "rolling recession," with consumer goods and housing/housing segments related in recession. An "official" recession remains a risk given the deeply inverted yield curve and the 10-month plunge in leading economic indicators.
RCEP and ASEAN are the world’s fastest-growing regions. Trends of capital inflow into tech, manufacturing, and infrastructure development continue while China’s ‘reopening’ will provide a much-needed boost for tourism and travel from the second quarter (Q2 2023).
Vietnam is likely to attract 36-38 billion USD in foreign direct investment (FDI) in 2023. However, the opening of China’s economy may dampen Vietnam's foreign investment attraction.
The transformative social change needed to limit global warming to 1.5 degrees Celsius isn’t happening fast enough. Keeping global warming within 1.5 degrees Celsius is “currently not plausible,” warns a new report from the University of Hamburg.
Global investment banks project jump in yuan in 2023
The International Monetary Fund has revised China's growth outlook sharply higher for 2023 to 5.2%, from 4.4% it forecast in October. Since then, Global investment banks have raised their forecasts for the Chinese yuan on expectations the country's economic reopening and Beijing's decision to relax property sector curbs will trigger strong capital inflows. The bullish forecasts follow Beijing's exit from zero-COVID in early December and reversion to pro-growth policies that restored international investor confidence and prioritised domestic demand.
"China's reopening and visible policy shift toward the property sector has lifted the yuan's outlook, and there could be more upside in the medium term," (Lemon Zhang, Barclays)
On average, the forecasts are for the yuan to end 2023 at 6.5 per dollar, a 3.6% rise from current levels. It has already surged more than 7% from the trough hit in late November to 6.7497 per dollar on Wednesday, up about 2.2% year-to-date. If it ends 2023 at 6.5, the yuan will be up 6.15% for the year, the best gains since 2020.
Read article here and download IMF World Economic Outlook Jan 2023 here.
U.S. Credit Card Debt Balloons
On the heels of another rate hike this week by the Federal Reserve, credit card annual percentage rates are already near 20%, on average, and set to climb even higher. At the same time, more consumers are leaning on credit to afford increasingly expensive necessities, like food and rent. That helped propel total credit card debt to a record $930.6 billion at the end of 2022, a 18.5% spike from a year earlier, according to the latest quarterly report by TransUnion.
The average balance rose to $5,805 over that same period, TransUnion found.
At nearly 20%, if you made minimum payments toward this average credit card balance, it would take you more than 17 years to pay off the debt and cost you more than $8,213 in interest, Bankrate calculated.
“Whether it’s shopping for a new car or buying eggs in the grocery store, consumers continue to be impacted in ways big and small by both high inflation and the interest rate hikes implemented by the Federal Reserve,” (Michele Raneri, TransUnion)
Overall, an additional 202 million new credit accounts were opened in the fourth quarter, led by originations among Generation Z, or adults ages 18 to 25, and the tally of total credit cards hit a record 518.4 million.
Read more here.
China’s Economy is Rebounding, But Reforms Are Still Needed
Sustaining the recovery will require both monetary and fiscal support as well as accelerated structural reforms. China’s economy is set to rebound this year as mobility and activity pick up after the lifting of pandemic restrictions, providing a boost to the global economy. The economy will expand 5.2 percent this year versus 3 percent last year. That’s good news for China and the world as the Chinese economy is now expected to contribute a quarter of global growth this year.
Even so, China still faces significant economic challenges. The contraction in real estate remains a major headwind, and there is still some uncertainty around the evolution of the virus. Longer-term, headwinds to growth include a shrinking population and slowing productivity growth. Accordingly, as we note in our annual report for China, the economy needs comprehensive macroeconomic policies and structural reforms to secure the recovery and promote balanced, green, and inclusive growth.
We recommend keeping fiscal policy neutral this year, with additional monetary policy accommodation helping secure the recovery amid muted inflation pressures and growth below its potential. Orderly restructuring of troubled property developers will also help reduce risks. With a shrinking labor force and diminishing returns to capital investment, growth in coming years will depend on boosting declining productivity growth. Without reforms, we currently estimate growth to fall below 4 percent over the next five years.
Read the article here and download the IMF Annual China Report here.
US Rolling Recession
Charles Schwab believes the U.S. economy remains in the midst of a "rolling recession," with consumer goods and housing/housing segments related in recession, but stronger services spending serving as a positive offset for now. An "official" recession (declared, ultimately, by the National Bureau of Economic Research) remains a risk given the messages emanating from the deeply inverted yield curve and the 10-month plunge in leading economic indicators.
Key Points:
The stock market is a leading indicator and may lead the economy as it eventually stabilises. That's not to say the bear market is over, but that a lot of the economic pain and inflation already experienced has been reflected in the bear market that's been underway for more than a year.
The U.S. economy "slowed significantly" in 2022, but indicators suggest "modest" growth in this year's first quarter.
Repeated again was that "ongoing increases" will be appropriate and that there are "no grounds for complacency" due to the risk of high inflation becoming "entrenched" in expectations.
Financial conditions have "tightened very significantly" over the past year, but the Fed is "not yet" at a sufficiently restrictive policy stance, and that "many things affect financial conditions, not just Fed policy."
It is "gratifying to see the disinflationary process now getting under way and we continue to get strong labor market data;" and that so far, they "see progress without any weakening in labor market conditions."
Reiteration of the "risk of doing too little" is greater than doing too much.
It's important to focus on inflation in "core services excluding housing" which needs to show disinflation before the Fed can say its job is complete.
Regarding the debt ceiling, "nobody should assume the Fed can save the economy if there's a default" and that the "only way forward" is for Congress to raise it.
Noted was that "state and local governments are flush" with cash, which should help "support growth this year."
The "base case" for 2023 is for "continued, but subdued growth" (as was the case in 2022).
Read the full review here.
China's FDI inflows expected to achieve record high in 2023
China's foreign direct investment inflows are expected to hit a new record in 2023 and will probably rank first in the world. This is because the country's FDI surge against headwinds last year has indicated foreign investors' strong confidence in the Chinese economy, while the government's ramped-up policy efforts are expected to boost economic recovery and expand FDI inflows into key industries, inland regions and major projects.
Wei Jianguo, a former vice-minister of commerce, predicts FDI will grow at two digits to probably reach $220 billion to $230 billion in 2023, surpassing the United States, as the latter faces economic slowdown — and even a recession.
The Ministry of Commerce said the country's FDI in actual use hit more than 1.23 trillion yuan in 2022, up 6.3 percent year-on-year. In US dollar terms, the figure was 189.13 billion, up 8 percent year-on-year. The performance was better than expected, given the domestic and external challenges, especially the growth rate for the manufacturing industry and major foreign investment projects — those with contractual foreign investment of more than $100 million each — being 46.1 percent and 15.3 percent, respectively.
Read full article here.
Vietnam’s FDI projected to reap up to 38 bln USD in 2023
According to the Foreign Investment Agency under the Ministry of Planning and Investment (MPI), Vietnam is likely to attract 36-38 billion USD in foreign direct investment (FDI) in 2023. The figure was nearly 22.4 billion USD in 2022. Deputy Director of the FIA Do Van Su said disbursement of foreign investment this year is expected to hit 22-23 billion USD.
However, Su acknowledged that the opening of China’s economy might affect Vietnam's foreign investment attraction, adding that China remained the leading investment destination in the region, so when they opened up, capital will flow into this market while that to Vietnam and other economies in the region may be limited.
On the contrary, the investment capital movement of the Republic of Korea (RoK) , Japan, and Taiwan (China) will be accelerated. This shift will be accelerated until 2025, and Vietnam will be a preferred investment destination for investors.
Read full article here.
ASEAN and RCEP Industry Watch for 2023
ASEAN is among the fastest-growing regions in the world. Despite the prevailing gloomy economic climate, Southeast Asia remains very attractive to foreign direct investment (FDI), and several industries look set to prosper in 2023. Trends of capital inflow into key sectors, such as tech, manufacturing, and infrastructure development, will likely continue while China’s ‘reopening’ will provide a much-needed boost for tourism and travel from the second quarter (Q2 2023).
The region is on course to become the world’s largest single market by 2030. The growth of Southeast Asia’s indigenous economies also offers a lucrative environment for foreign businesses, due to ts total population of 662 million people and a combined gross domestic product (GDP) of US$3.2 trillion. China has considerable links with ASEAN economies and seeks to enhance them through increased infrastructure spending and by improving access to trade, such as through the Regional Comprehensive Economic Partnership (RCEP).
Manufacturing
There are clear challenges for the region’s manufacturing sector in 2023. and in some countries, this dependence on manufacturing is more pronounced – in Vietnam, it is the backbone of the economy, and in Thailand – the sector contributed 27 percent of GDP in 2021. However, there are several reasons to believe that capital inflows into manufacturing in the region will continue in 2023. For one, ASEAN-made goods are generally considered more cost-effective than those made in China, primarily due to factors such as labor costs, leading to the growing shift to ASEAN.
Tourism
Since the start of the pandemic, the tourism sector has faced challenges across ASEAN states. However, there are several reasons to expect 2023 to be a more positive year for the sector. First among these is China’s ‘reopening’ to travel. The Chinese immigration authority recently announced that it would resume issuing visas for mainland residents to travel overseas from January 8. A lack of Chinese tourists had been seen as the predominant challenge for the sector in most ASEAN states.
Returning demand for tourism in the US and Europe, despite inflationary challenges and ASEAN states have also developed programs to attract foreign arrivals, such as the digital nomad visa program in Malaysia, and Indonesia’s second home visa scheme. Indonesia has set an ambitious target of attracting 7.4 million foreign tourists for 2023, almost double that recorded in 2022.
Digital economy
The digital economy across the ‘ASEAN-6’ (Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam) is expected to reach a gross merchandise value (GMV) of US$200 billion by the end of 2022, according to a report from Google, Temasek and Bain & Company. This is expected to reach a GMV of US$330 billion by 2025. According to a recent UNCTAD report, the number of start-ups in ASEAN that have raised more than US$1 million in funding almost tripled to 1,920 between 2015 and 2021.
The growth rate is 85 percent greater than in Europe and 65 percent faster than in the US.
The majority of Southeast Asia’s population is still unbanked or underbanked and MSMEs in the region also lack formal credit histories hindering their access to capital. This is crucial as MSMEs make up the backbone of most ASEAN countries. Fintech companies can plug this gap by issuing microloans that have terms and maturity which are small and short – borrowers can receive as little as US$100, which can be disbursed within 24 hours.
Read the full assessment here.
War, Politics, Business Divert Planet from 1.5 Degree Target
The transformative social change needed to limit global warming to 1.5 degrees Celsius isn’t happening fast enough. Keeping global warming within 1.5 degrees Celsius is “currently not plausible,” warns a new report from the University of Hamburg. The types of swift, transformative social change needed to reach that target cannot happen fast enough.
A less ambitious target of 2 C still could be in the cards, the report adds. But it would require world leaders to set more ambitious climate goals for their nations and put them in motion immediately.
The “Hamburg Climate Futures Outlook” report examines the factors affecting the world’s ability to meet its global climate goals. Nations participating in the Paris climate agreement have pledged to keep global warming well under 2 C while striving for a more ambitious 1.5 C target.
Read the review here and download the full report here.