William Sterling, Ph.D. GLOBAL STRATEGIST | GW&K INVESTMENT MANAGEMENT Highlights The repercussions of COVID-19 policies and fluctuating economic conditions worldwide have rattled consumers and central banks alike. While U.S. economic data remains mixed, with weak retail sales, a robust but easing labor market, and stubborn core inflation, China’s first-quarter GDP beat expectations. Banking Fears Down, Rate Expectations Up In the fallout of the pandemic economy, measures that helped boost consumer confidence and increase investor appetite in the U.S. have faded. Instead, there are now ongoing concerns about inflation and rising interest rates. U.S. consumers are hitting the proverbial brakes. Retail sales have been on a steady decline since January and may continue to soften in response to rate hikes by the Federal Reserve aimed at curbing inflation. First Quarter Consumer Spending Front-Loaded in January (U.S. Retail Sales, MOM Percent Change, SA) Source: GW&K Investment Management, Bloomberg, and Macrobond Beating the Odds Meanwhile, in China, where zero-COVID policies stalled the economy for far longer than in the U.S. and other Western economies, the pace of economic gains has exceeded expectations. After COVID restrictions were lifted late last year, China’s Q1 GDP beat expectations at 9.1% annualized. The upward momentum in the Chinese economy has been reinforced by the government’s implementation of several measures including infrastructure spending and tax cuts. Unlike the U.S., March retail sales in China rose 10.6% year-over-year confirming a consumer-led recovery. China’s March Activity Data Confirm Recovery (Retail Sales and Industrial Production) Source: GW&K Investment Management and Macrobond A Complex Outlook The pandemic created unique economic challenges. While the first quarter has been mixed for the U.S., China is rapidly rebounding. This divergence seems likely to continue this year as tight Fed policy continues to restrain U.S. growth while Chinese policymakers continue to support a consumer-led recovery. LEARN MORE ABOUT GW&K
Advisor Insights Chinese Consumption: The Missing Link At 54.5% in 2021, China’s consumption rate as a percentage of GDP is relatively low compared to other developed countries. Contributing factors include high savings rates, income inequality, and government policy. June 16, 2023 Read Now
Advisor Insights Could Chinese Equities Stage a Strong Comeback in 2023? Attractive valuations coupled with key policy changes are likely to result in 2023 being a bullish year for Chinese equities. January 9, 2023 Read Now