Engineering a soft landing is one of the most-difficult tasks a macro policymaker can undertake but it’s what Chinese officials have been trying to do in housing.
Saturday’s Chinese home price data underscores the risks with prices up 2.6% y/y in a deceleration from 3.0% y/y in November.
As recently as mid-2019, prices were rising at a 10% clip. But we’ve now seen several instances of officials attempting to gently deflate the bubble.
Evergrande is certainly the kind of thing that can change the psychology around housing and the large amounts of investment properties add to the risks.
Euro area economic growth stumbled in December as the pandemic flares up, largely weighed down by Germany. The region’s biggest economy saw activity slump to its lowest in 18 months amid a surge of COVID-19 infections and tighter restrictions.
The downturn in the services sector is what stands out last month, with price pressures continuing to stay more elevated heading into the new year. On the latter, that reaffirms the notion that inflation is not likely to abate any time soon. Markit notes that:
“The accelerated expansion in output we saw in November unfortunately turned out to be brief. Amid a resurgence of COVID-19 infections across the euro area, growth slowed to the weakest since March in December. In Germany, where measures to combat COVID-19 have been more stringent than other monitored euro area countries, levels of economic activity broadly stagnated in December. Nonetheless, slower growth was seen across the board.
“The spread of the Omicron variant had a particularly profound impact on the services sector, reflecting renewed hesitancy among customers due to the novel strain of the virus. Looser travel restrictions in recent months had facilitated greater levels of tourism, which in turn provided additional support to the eurozone service sector. However, this was withdrawn in December as overseas demand declined for the first time since May.
“There was also little to cheer with regards to inflation. Although there was a marginal easing of price pressures, we’re still in excessively hot territory – increases in both input and output costs were the second-quickest on record.
“As euro area nations deal with the latest developments in the pandemic, it’s clear that risks to the economy are now greater as tighter restrictions to curb the spread of COVID-19 are more likely than they have been recently.”
A positive takeaway from the report highlights that supply constraints are easing somewhat but they are still persistent. Firms capitalised on that by adding to inventories at the fastest rate recorded by the survey but manufacturing output and overall conditions remain rather stagnant from November levels.
There was also some easing in price pressures but they remain elevated, holding close to the record highs in the survey. Markit notes that:
“It has been an incredibly challenging period for eurozone manufacturers this second half of 2021, but the latest survey data hasn’t spoiled the festive cheer too much – we’re seeing some tentative, but very welcome signs that the supply chain crisis which has plagued production lines all across Europe is beginning to recede. The Suppliers’ Delivery Times Index increased for a second month in a row to its highest since February, signalling a weaker deterioration in vendor performance.
“Although what gains to be had were only marginal, with shortages, port congestion and transport issues still at large, PMI data showed stocks of purchases rising at a survey-record rate in December. This should hopefully bring some much-needed relief to production schedules in the very near-term, which have been squeezed tight by input shortages. That said, the latest survey data showed output growth remaining subdued overall and unchanged from November.
“Alleviating supply chain pressures also fed through to prices as input costs rose at the slowest rate since April. Easing inflation rates are again a welcome sign, but we’re still in hot territory. We’re now facing a fresh bout of economic uncertainty as the Omicron variant emerges in Europe. COVID-19-driven supply chain disruptions cannot be ruled out, and therefore neither can further spikes in inflation.”
