By Naomi Rovnick, Nell Mackenzie and Yoruk Bahceli

LONDON (Reuters) – Investors who had been enjoying a brief rebound in long-suffering UK markets are hunkering down for a stretch of losses as ructions in the pound, government bonds and stocks feed on each other and put Britain at risk of a wave of hedge fund attacks.

As global borrowing costs rise in a trend led by the U.S. Treasury market, the UK’s high-debt, low-growth economy that just months ago appeared to be shrugging off years of post-Brexit gloom is now viewed as vulnerable to capital flight.

Traders now expect months of volatility for the pound, which ended 2024 as the top-performing major currency against the dollar due to optimism that the Labour Party’s landslide July election win marked the end of years of political instability. 

That is creating a negative feedback loop by sapping interest in UK stocks that now face fresh currency risks, and casting doubt over Bank of England interest rate cuts, threatening already stagnant economic growth as the nation’s debt burden rises.

There are signs that the pain will be sustained. Options trading data and evidence from hedge fund industry insiders and securities dealing desks point to speculators having piled into bets against the pound and UK gilts.

“I don’t think it’s going to end quickly,” Brandywine Global fixed income portfolio manager Jack McIntyre said of the UK rout, noting that investors remain scarred by memories of the 2022 gilts and sterling crisis sparked by former Prime Minister Liz Truss’ mini-budget. 

The U.S.-based asset manager said he had taken on exposure to UK gilts on the basis that these assets would benefit from rate cuts, but hedged this with contracts that profit if sterling, now 2.5% lower versus the dollar this month, keeps falling. 

BUYERS’ STRIKE 

Just months ago, UK markets were shining as a beacon of stability amid political chaos in France and seemed poised to recover from a long period of government turmoil, currency volatility and being shunned by overseas investors. 

January’s market moves were “refocusing the minds of many around the world on Britain, its economic and its financial condition,” said Mario Monti, the economist who was tapped in 2011 to lead Italy as it faced financial implosion. 

Long-term UK borrowing costs have touched 27-year highs and the domestically focused FTSE 250 share index is down almost 6% since August. A gauge of buying protection against sterling volatility is near its highest since March 2023. 

“The UK is more vulnerable to a buyers’ strike post-Brexit because it is a less core holding for many global investors and it has a less obvious growth story,” U.S. investment bank Evercore ISI vice-chairman Krishna Guha said by email.

Bank of America this week warned of “a significant worsening of the situation that could lead to disorderly moves in gilts (and) sterling, in turn souring growth sentiment and impacting equities negatively.” 

‘WEAKEST LINK’

Surging debt costs have hampered finance minister Rachel Reeves’ plan to revive growth via public investment, while sterling’s drop has put the BoE in a bind in case rate cuts fuel more currency weakness, raising import cost inflation. 

“As a low-growth economy with relatively high interest rates, the UK is sailing very close to the wind,” UBS investment bank head of G10 FX strategy Shahab Jalinoos said. 

“In a world of rising interest rates, it’s trading like the weakest link.” 

Political sentiment is febrile again too, as polls indicate a popularity surge for Brexit campaigner Nigel Farage’s Reform Party, while Labour leader Keir Starmer’s ratings plummet. 

“The political instability that we thought we were done with when the (July) election happened is back,” Janus Henderson European equities manager Tom Lemaigre said. 

He expected renewed sterling volatility that might deter foreign investment into UK stocks exposed to currency risk. 

HEDGE FUNDS CIRCLE 

“Hedge funds are now selling sterling and selling gilts,” Artemis Fund Management portfolio manager Liam O’Donnell said.

“It’s active money, active short selling coming into the market,” he added, referring to the practice of borrowing securities in the hope of selling them and then buying them back more cheaply.

Brokers are charging fees of up to 30 basis points (0.3%) for lending gilts to speculators, almost double the 10-year average, reflecting heightened demand from short sellers, data from S&P Global Market Intelligence showed.

Trend-following hedge funds called CTAs are mostly betting against the pound and UK gilts, JPMorgan said in a client note.

The UK’s lagging growth had lured “a subset” of hedge funds into short-selling sterling, Franklin Templeton Investment Solutions senior research analyst Tom Finnerty said.

Nevertheless, some view the selling wave as an opportunity. 

“I think pessimism is now extreme,” said Mario Unali, head of investment advisory at hedge fund investor Kairos. 

He was looking at taking on UK exposure in the next few months, he said.

BEIJING (Reuters) – The Chinese government “has never and will never” require companies or individuals to collect data for or provide data to it in a way that violates the law, China’s foreign ministry said on Friday.

The ministry spoksperson was responding to a question about six Chinese companies including TikTok, Shein, Xiaomi (OTC:XIACF), which have been named in a privacy complaint filed by Austrian advocacy group Noyb claiming the firms were unlawfully sending European Union user data to China.

LONDON (Reuters) – The Bank of England said on Friday it would delay the implementation of tougher bank capital requirements by one year until January 2027, amid an aggressive pushback against the stricter global standards in the United States.

The standards written by the global Basel Committee are designed as the final set of international reforms to make the banking system safer after the 2008 global financial crisis, and are meant to be implemented by member jurisdictions.

They have faced fierce opposition from U.S. banks. The potential next head of the U.S. banking regulator, Travis Hill, has laid out plans for lighter touch regulation and said he would reconsider the capital rules known as the ‘Basel endgame’.

The BoE’s statement on the Basel 3.1 regulation was published by its regulatory arm the Prudential (LON:PRU) Regulation Authority (PRA), having made the decision in consultation with Britain’s Treasury.

“This allows more time for greater clarity to emerge about plans for its implementation in the United States,” the PRA said, adding that it had taken into account competitiveness and growth considerations.

Bank of England Deputy Governor Sam Woods said earlier this month that Britain should avoid participating in a “race to the bottom” on financial regulation.

The regulator has already said it will adjust some Basel proposals to the needs of its domestic banking system, including capital requirements for small business lending.

By Leika Kihara

TOKYO (Reuters) -The Bank of Japan is likely to raise interest rates next week barring any market shocks when U.S. President-elect Donald Trump takes office, and maintain a pledge to keep pushing up borrowing costs if the economy continues to recover, said five sources familiar with its thinking.

However, the central bank likely won’t offer explicit guidance on the pace of future rate hikes or how far it could eventually raise them, the sources said.

Under its current guidance, the BOJ pledges to continue raising its short-term policy rate if economic and price developments move in line with its forecasts.

“For the BOJ, there’s really not much to add or change to this guidance given still very low real interest rates,” said one of the sources, a view echoed by another source.

Governor Kazuo Ueda and his deputy said earlier this week the BOJ will debate whether to raise interest rates, signaling its intention to take borrowing costs higher at the Jan. 23-24 meeting unless Trump’s inaugural speech on Monday upends markets.

As a result, markets have priced in a more than 80% chance of a hike in short-term rates from 0.25% to 0.5% next week, which would bring the BOJ’s policy rate to levels unseen since 2008.

“They’re kind of saying, without saying, we’re going to hike,” Jeffrey Young, chief executive officer of DeepMacro, said on the remarks by Ueda and deputy governor Ryozo Himino.

“You have growth at trend, the output gap pretty much closed and becoming positive, and inflation at or above target. Why keep the nominal policy rate at 25 basis points, which is deeply negative in real terms?”

Unless Trump’s speech and any executive orders he issues next week trigger severe market disruptions, the BOJ will likely proceed, said the sources, who spoke on condition of anonymity as they were not authorised to speak publicly.

“The market seems to have gotten the BOJ’s message,” said one of the sources.

“While a hike next week is certainly not a done deal, the only remaining hurdle is what Trump could say and how markets might react,” another source said.

RATES FAR FROM NEUTRAL

With a hike next week seen as a near certainty, market attention is shifting to any clues the BOJ may offer on the pace and timing of further increases.

The BOJ will likely raise its inflation forecasts in a quarterly outlook report and may highlight upside risks as a persistently weak yen keep import costs high, the sources said.

While many analysts expect the BOJ to hike rates to 0.75% in the latter half of this year, the bank likely won’t give much clues on the timing of its next move, the sources said.

The BOJ also has no plan, at least for now, to offer details on Japan’s neutral rate beyond staff estimates that show it is in a range of around -1% to 0.5% on an inflation-adjusted level.

The staff estimates mean if inflation expectations were to stabilise around the BOJ’s 2% target, the BOJ could raise its short-term rate at least to around 1% without cooling economic growth.

Ueda has refused to pin-point the exact level of Japan’s neutral rate, saying it was too hard to come up with credible estimates due to a lack of data.

Even if the BOJ were to hike rates next week, short-term rates will remain well below neutral levels, the sources said, adding it was premature to discuss any major change to its guidance on the future policy path.

“Given so much uncertainty on the outlook, it is impossible to pre-set a clear path or pace” on future policy moves, a third source said.

The BOJ ended negative interest rates in March and raised its short-term rate target to 0.25% in July on the view Japan was on track to sustainably meet the bank’s 2% inflation target.

Ueda has signalled readiness to raise rates further if broadening wage hikes underpin consumption and allow companies to keep hiking prices not just for goods but services.

By Mike Dolan

LONDON (Reuters) – For all the trepidation about world trade, debt and inflation, it could well be worker shortages that define economic trends this year – on both sides of the Atlantic.

Immigration curbs and deportations form a central plank of the agenda of President-elect Donald Trump, who returns to the White House on Monday. If he follows through with these plans, up to 1 million illegal migrants could be deported over the next two years and U.S. population growth could slow as a result.

Meanwhile, in Europe, there’s growing speculation that a durable ceasefire between Ukraine and Russia could see many refugees and migrants currently spread across Europe begin to head home.

More than 4.3 million Ukrainians have fled the country since Russia’s invasion in 2022, with more than 1 million settling in Germany alone. Many Ukrainians were given legal rights to live and work in Europe in a 2022 European Union directive. The prospect of losing at least some of these workers is already prompting concern in some central European nations.

A significant decline in workers at this juncture – when labour markets in many economies remain hot despite the severe borrowing rate spike over the past two years – is rekindling concerns that some countries could face a potentially stagflationary supply squeeze.

The prospect of a fresh upturn in wage inflation is just one more headache for central banks that otherwise seem keen to roll back the interest hikes of 2022 and 2023.

LABOUR MARKET HEAT

The International Labour Organization, a U.N. agency, said on Thursday that the global jobless rate remained at a historic low of 5% last year. It forecast that the rate would stay there in 2025, dipping further to 4.9% next year.

And mapping out longer-term ageing and fertility trends to illustrate how ebbing labor supply is affecting that, JP Morgan strategists noted the working-age population in developed economies as a whole looks to have peaked at 746 million in 2023 and is projected to fall by 47 million through 2050 based on U.N. forecasts.

This all sets the stage for a year that could see U.S. and European businesses experience an echo of the labour market anxieties that emerged in the wake of the pandemic.

Indeed, the heat of the U.S. jobs market doesn’t seem to have dissipated much last year.

Although difficulty in hiring on an aggregate level appears to have returned to pre-pandemic levels, U.S. small business surveys continue to flag acute worker shortages in key sectors such as transportation, construction and manufacturing.

With one-fifth of small firms planning to pick up hiring in the next three months, almost 90% of those looking to recruit reported no or few qualified applicants. And the number of businesses saying labour costs were their single biggest problem was just 2 percentage points below 2021’s extremes.

This then throws a spotlight back on Trump’s proposed migration curbs and deportation plans. Some 8.3 million U.S. workers were estimated to be illegal migrants as recently as 2022.

MACRO DRIVER

Migration has been a critical macro driver over the past two years and likely a key reason why the U.S. economy was able to continue to create a significant number of jobs without generating an inflation spike.

The U.S. Congressional Budget Office last February sharply increased its estimate for net immigration through 2023, forcing economists to rethink their expectations for sustainable payroll growth in 2024.

However, those migration numbers have ebbed significantly since then, not least due to a mid-year asylum ban from President Joe Biden’s administration that’s estimated to have already cut monthly net migration by one-third compared with 2023.

Trump’s proposed deportations could tighten things much further, and investors are therefore starting to see Trump’s migration agenda as potentially more economically important than even his tax or tariff promises.

Morgan Stanley (NYSE:MS) reckons Trump’s plans could see deportations of about 1 million migrants over one to two years, and a decline in population growth from 1.2% in 2024 to 1.0% or less this year.

Schroders (LON:SDR) economists think “the greater threat to inflation probably comes from a crackdown on immigration, along with mass deportations, if it leads to labour shortages that would ultimately result in higher wages and services inflation.”

The Schroders team cite Peterson Institute estimates that mass deportations could add 3 percentage points to inflation compared to a bump of one point from a 10% tariff hike. They reckon such a supply shock could cut potential GDP growth down to 1.5% from more than 2% currently.

And Invesco argues that if deportation negatively impacts growth and creates a stagflationary environment, “a significant stock market downturn” would ensue.

The details surrounding this debate – including whether deportations will be partially offset by working visas for skilled migrants – are numerous.

But migration and fears about a shrinking workforce have clearly become a key macro investment variable that perhaps should dominate market thinking around Trump’s inauguration next week.

The opinions expressed here are those of the author, a columnist for Reuters.

(By Mike Dolan; Editing by Jamie Freed)

TOKYO (Reuters) – Japan’s core consumer inflation likely accelerated in December, boosted by higher energy costs, while the Bank of Japan is seen raising rates next week, a Reuters poll showed on Friday.

The core consumer price index (CPI), which includes oil but excludes fresh food prices, rose to 3.0% in December from a year ago, according to a Reuters poll of 16 economists.

This would be the highest since August 2023, when the index stood at 3.1%.

Economists said the government scaling down subsidies for energy costs likely pushed up core inflation.

The internal affairs ministry will announce the CPI data at 8:30 a.m. on Jan. 24 (2330 GMT, Jan. 23).

The survey also showed the Bank of Japan will likely raise rates to 0.5% from 0.25% at its upcoming monetary policy meeting on Jan. 23-24.

BOJ Governor Kazuo Ueda said on Wednesday that the bank would debate whether to raise rates next week, signalling it will take borrowing costs higher barring any market shocks after U.S. President-elect Donald Trump takes office on Monday.

“Barring significant market turmoil after the U.S. presidential inauguration, a rate hike this month now looks almost like a done deal,” said economists at Morgan Stanley (NYSE:MS) MUFG Securities in the survey.

The data next week also includes exports, which likely grew 2.3% in December from a year earlier, slower than a 3.8% gain in November.

Imports were expected to have increased 2.6%, resulting a deficit of 53 billion yen ($341 million) in December.

“Export growth is likely modest due to slow recovery of auto production in addition to the sluggish global production,” said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.

The finance ministry will announce the trade data at 8:50 a.m. on Jan. 23(2350 GMT, Jan. 22).

Machinery orders, a highly volatile but leading indicator of capital spending for the coming six to nine months, likely slipped 0.4% month-on-month in November after a 2.1% growth in October, according to the poll.

The data will be released at 8:50 a.m. on Jan. 20 (2350 GMT, Jan. 19).

($1 = 155.4100 yen)

A look at the day ahead in European and global markets from Kevin Buckland

The tone in the equities markets was decidedly feeble as the week came to an end, with Chinese markets getting very little help from GDP figures that topped estimates to hit Beijing’s 2024 growth target bang on at 5%.

Japanese stocks are also struggling, weighed down by the yen’s strengthening beyond 155 per dollar for the first time in almost a month as traders ramp up bets for a BOJ rate hike next week.

An MSCI gauge of global shares is still on course – for now – for the best week since the start of November, but that rally is really the story of one day – Wednesday – when U.S. bank results got earnings season going with a bang.

Caution is likely to reign globally, with Donald Trump’s inauguration as U.S. President on Monday looming large and potentially bringing bombshells not only in his speech but in any immediate executive orders, which could include massive tariffs on friends and foes alike.

The sharp retreat in bond yields – driven by a revival in bets for a Fed rate cut by June – must be a relief for global investors, although it seems to have offered little to no support for stocks in the latest market moves. [IRPR]

The macro economy is still front and centre for both the fixed income and foreign exchange markets, and the dollar is on the back foot – an unfamiliar position following six straight weeks of gains against a basket of other leading currencies.

The beleaguered pound seems to have found its footing this week, as has the euro, vexing bears who thought a plunge to parity with the dollar might be imminent at the start of the week.

On the calendar in Europe today, Britain releases retail sales data and the final reading of euro zone consumer inflation is due, both for December.

Bank of Spain Governor Jose Luis Escriva gives a speech on central bank independence in Madrid.

Wall Street earnings include State Street (NYSE:STT) and Citizens Financial (NYSE:CFG) Group.

Monday will be a market holiday stateside for Martin Luther King Jr. Day.

Key developments that could influence markets on Friday:

-UK retail sales (Dec)

-Euro zone HICP final (Dec)

-Bank of Spain Govenor Escriva speaks

-U.S. earnings from State Street, Citizens Financial Group

(By Kevin Buckland; Editing by Edmund Klamann)

BEIJING (Reuters) -China’s economy ended 2024 on better footing than expected helped by a flurry of stimulus measures, although the threat of a new trade war with the United States and weak domestic demand could hurt confidence in a broader recovery this year.

Exports, one of the few bright spots, could lose steam as United States President-elect Donald Trump, who has proposed hefty tariffs on Chinese goods, is set to return to the White House next week.

For the full-year 2024, the world’s second-largest economy grew 5.0%, data from the National Bureau of Statistics (NBS) data showed on Friday, meeting the government’s annual growth target of around 5%. Analysts had forecast 4.9% growth.

The economy grew 5.4% in the fourth quarter from a year earlier, significantly beating analysts’ expectations and marking the quickest since the second quarter of 2023.

Analysts polled by Reuters had forecast fourth-quarter gross domestic product (GDP) would expand 5.0% from a year earlier, quickening from the third-quarter’s 4.6% pace as a flurry of support measures began to kick in.

“China’s economy is showing signs of revival, led by industrial output and exports,” said Frederic Neumann, chief Asia economist at HSBC in Hong Kong.

However, he added, the strong GDP print last quarter may already have been flattered by front-loading of shipments to the U.S. – something that will inevitably lead to a pay-back with production and exports turning down once tariffs begin to bite.

“As exports come under pressure in 2025, dragged lower by U.S. import restrictions, there will be an even bigger need to apply domestic stimulus.”

Chinese stocks drew some support following the GDP data. Mainland Chinese blue chips rose 0.3% as of 0207 GMT, while Hong Kong’s Hang Seng added 0.14%.

The yuan was little changed against the dollar.

On a quarterly basis, GDP grew 1.6% in October-December, compared with a forecast 1.6% increase and a revised 1.3% gain in the previous quarter.

China’s economy has struggled for traction since a post-pandemic rebound quickly fizzled out, with a protracted property crisis, mounting local debt and weak consumer demand weighing heavily on activity.

Policymakers have pledged more stimulus this year, but analysts say the scope and size of China’s moves may depend on how quickly and aggressively Trump implements tariffs or other punitive measures.

But even as strong exports propelled the country’s trade surplus to a record high of $992 billion last year, the yuan currency has come under selling pressure. A dominant dollar, sliding Chinese bond yields and the threat of higher trade barriers have pushed the yuan to 16-month lows.

A slew of December economic readings on Friday suggested the economy gained traction heading into the new year, helped by a flurry of government support measures.

Even the property sector witnessed signs of recovery as new home prices steadied in December for the first time since June 2023, NBS data showed earlier on Friday. But for the full year, property investment fell 10.6% from the previous year, marking the largest annual decline on record.

Industrial output grew 6.2% from a year earlier in December, quickening from November’s 5.4% pace and beating expectations for a 5.4% increase in a Reuters poll. It marked the fastest growth since April last year.

Retail sales, a gauge of consumption, rose 3.7% last month, accelerating from the 3.0% pace in November as consumers started to prepare for the eight day-long Lunar New Year holidays in January.

“It (will) require large and persistent policy stimulus to boost economic momentum and sustain the recovery. To contain the rising unemployment rate the fiscal policy stance needs to become more proactive,” Zhiwei Zhang, chief economist at Pinpoint Asset Management in Hong Kong.

As businesses remained wary of adding workers before the festival and with concerns over possible trade disputes with the U.S., the nationwide survey-based jobless rate climbed to 5.1% in December from November’s 5.0%.

BEIJING (Reuters) -China’s economy ended 2024 on better footing than expected helped by a flurry of stimulus measures, although the threat of a new trade war with the United States and weak domestic demand could hurt confidence in a broader recovery this year.

For the full-year 2024, the world’s second-largest economy grew 5.0%, meeting the government’s annual growth target of around 5%. Analysts had forecast 4.9% growth.

The economy grew 5.4% in the fourth quarter from a year earlier, significantly beating analysts’ expectations and marking the quickest since the second quarter of 2023.

KEY POINTS

* 2024 GDP +5.0% (versus target of around 5%)

* Q4 GDP +5.4% y/y (f’cast +5.0%, Q3 +4.6%)

* Q4 GDP +1.6% q/q s/adj (f’cast 1.6%, Q3 +1.3% revised)

* Dec industrial output +6.2% y/y (f’cast +5.4%, Nov +5.4%)

* Dec retail sales +3.7% y/y (f’cast +3.5%, Nov +3.0%)

* 2024 fixed asset investment +3.2% (f’cast +3.3%, Jan-Nov +3.3%)

* 2024 property investment -10.6% (Jan-Nov -10.4%)

* Fears of more U.S. trade tariffs clouding 2025 outlook

MARKET REACTION:

China’s main Shanghai stock market was up 0.3%, while the blue-chip CSI 300 index was 0.4% higher after the data release. The yuan was little changed against the dollar.

COMMENTARY:

ELLIOT CLARKE, SENIOR ECONOMIST, WESTPAC, SYDNEY

“Overall, these are outcomes as expected, and what’s driving them is expected as well that external sector. And really to make sure they’re in a strong position to weather the uncertainty around U.S. tariffs, and to make sure consumers don’t get stuck, they need to do more with policy through February and March when we get the congress meeting.

“They will cut interest rates a bit further this year and cut triple R to support liquidity. So that all continues, but really the driving force for the growth outlook has to be the fiscal side.

“They can achieve close to 5% growth in 2025. That’s on the assumption that they do take that active stance with policy and it’s on the assumption as we have seen with trade this year they have got themselves into a good position in terms of avoiding U.S. tariffs.”

GARY NG, SENIOR ECONOMIST, NATIXIS, HONG KONG

“The underlying headwind is fiercer than the headline GDP number suggests. With strong net export growth and more supportive stimulus, some positive momentum has been brewing in the economy towards stabilisation.

“However, domestic demand has remained weak without a rebound in industrial production and retail sales, especially as the property sector still drags investment. If China wants to achieve a growth rate above 4.5% in 2025, it will need sharper interest rate cuts and more demand-side fiscal policies.”

LYNN SONG, CHIEF ECONOMIST FOR GREATER CHINA, ING, BASED IN HONG KONG

“After reaching the growth target in 2024, the key question for 2025 is where policymakers will set the growth target at the upcoming Two Sessions in March. Our baseline scenario has policymakers electing to set a target of “around 5%” again or at the least “above 4.5%’. 

“Setting of such a target despite likely headwinds from tariffs and sanctions would imply that we will see stronger fiscal policy support as well as continued monetary policy easing and would likely be seen by markets as a signal of confidence.”

ALEX LOO, FX AND MACRO STRATEGIST, TD SECURITIES, SINGAPORE

“We don’t reckon the economy is on a strong footing despite the recent stimulus bump, and more fiscal funds are likely to be deployed at the Budget on March 5 to cushion China’s economy against the Trump (administration’s) policies. 

“Focus turns to Trump’s actions on China next week and a 60% tariff on China may prompt the PBOC to cut the 7-day reverse repo next week to boost activity through monetary easing.

“For 2025, we expect China’s GDP growth at 4.8%, as an around 5% target is likely to be unveiled at the Budget judging by the local government GDP targets.”

ANDY JI, ASIAN FX & RATES ANALYST, ITC (NS:ITC) MARKETS, SHANGHAI

“It is largely a mixed bag of economic data today to end 2024, with some data discrepancy and clearly carrying lacklustre momentum into 2025. In particular, the full-year pace of retail sales and investment growth, at 3.5% and 3.2%, respectively, remained significantly below the overall headline GDP growth of 5%.

“With U.S. trade policy change looming, this year’s growth target will be closely watched again in March, although too little attention was paid to the big miss in 2024 inflation target of ‘about 3%’, on the back of weak consumer spending.”

BEN BENNETT, ASIA-PACIFIC INVESTMENT STRATEGIST, LEGAL AND GENERAL INVESTMENT MANAGEMENT, HONG KONG

“The data is an endorsement of the economic shift that authorities have implemented. The property sector is still under pressure and authorities don’t want to see a return to the old days of leverage and big price rises, so investors still need to be patient.”

ZHIWEI ZHANG, CHIEF ECONOMIST, PINPOINT ASSET MANAGEMENT, HONG KONG

“The batch of macro data shows mixed messages. While the GDP growth surprised on the upside in Q4, the unemployment rate rose above 5%. I think the shift of policy stance last September helped the economy stabilise in Q4, but it requires large and persistent policy stimulus to boost economic momentum and sustain the recovery. To curb the rise in unemployment rate, fiscal policy must take a more proactive stance.”

ZHAOPENG XING, SENIOR CHINA STRATEGIST, ANZ, SHANGHAI

“GDP surprises the market at 5.4% y/y high on a low base as well as policy stimulus. IP is strong due to external frontloading demand, while retail sales normalise to annual average levels.

“The strong numbers pave the way to about 5% 2025 growth target and offer a chance for China to review the risk side in the economy. Recent liquidity tightness and Vanke saga both suggest macro prudential now carry more weight than growth in the policy agenda ahead of U.S. tariffs. We expect the PBoC to ease immediately against the possible tariff shock. Near-term RRR cut before LNY remains possible, but rate cut may delay.”

WOEI CHEN HO, UOB, ECONOMIST, SINGAPORE

“It’s mainly driven by the industrial sector in December. Part of this would be to do with front-loading of production and exports before (U.S. President-elect Donald) Trump comes back to office.

“That may not be sustained going forward, so the outlook for this year is still going to be weak. Retail sales is one of the most important things we should be watching now because it is a reflection of the consumer sentiment, which I think is still rather soft at this point.”

CHARU CHANANA, CHIEF INVESTMENT STRATEGIST, SAXO, SINGAPORE

“That’s a sigh of relief for Chinese assets, it signals that the stimulus measures of 2024 are having an impact. China markets still face structural headwinds as well as tariffs risks, and the response to those will be the ultimate driver of long-term returns. The beat is quite strong on industrial production – perhaps that’s because of the export front-loading to the U.S. before the new administration’s tariffs kick in. Property still weak, retail sales comes more from the stimulus impact.

“Positive signals, but we will need to see how stimulus and tariff risks develop from here for the momentum to sustain.”

BACKGROUND

* China’s economy has struggled for traction since a post-pandemic rebound quickly fizzled out, with a protracted property crisis, weak demand and high local government debt levels weighing heavily on activity.

* Policymakers have unveiled a blitz of stimulus measures since last September to revive sputtering growth, and have pledged to do more this year as U.S. President-elect Donald Trump, who has proposed hefty tariffs on Chinese goods, is set to return to the White House next week.

* Analysts say the scope and size of China’s moves may depend on how quickly and aggressively Trump implements tariffs or other punitive measures.

* China is expected to unveil growth targets and stimulus plans during the annual parliament meeting in March.

* The world’s second-largest economy is likely to slow to 4.5% in 2025 and cool further to 4.2% in 2026 amid U.S. tariff pressures, a Reuters poll showed.

BEIJING (Reuters) – China’s economy grew 5.4% in the fourth quarter from a year earlier, official data showed on Friday, significantly beating analysts’ expectations and enabling the government to meet its annual growth target.

Analysts polled by Reuters had forecast fourth-quarter gross domestic product (GDP) would expand 5.0% from a year earlier, quickening from the third-quarter’s 4.6% pace as a flurry of support measures began to kick in. The quarter’s growth marked the quickest since the second quarter of 2023.

For the full-year 2024, the world’s second-largest economy grew 5.0%, data from the National Bureau of Statistics data showed, meeting the government’s annual growth target of around 5%. Analysts had forecast 4.9% growth.

On a quarterly basis, GDP grew 1.6% in October-December, compared with a forecast 1.6% increase and a revised 1.3% gain in the previous quarter.

Chinese policymakers have unveiled a blitz of stimulus measures since September last year to revive sputtering growth, and have pledged to do more this year as U.S. President-elect Donald Trump, who has proposed hefty tariffs on Chinese goods, is set to return to the White House next week.