Episode Details

Kia ora,

Welcome to Monday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

Today we lead with news we are now in the final two weeks of the northern holiday season, and that is anchored by the central bank shindig at Jackson Hole, WY starting at the end of the week.

This week, China will review its Loan Price Rates later tomorrow. No change is expected. Canada will report July CPI inflation. And there is a dairy auction on Wednesday. So it will be a light data calendar.

But first up today, more evidence that foreign direct investment has stalled into China. We marveled at the stall in both May and June and it has extended into July although it was now a positive ¥40.6 bln (NZ$9.3 bln) in the month. The net inflows are still very small for a country the size of China. In July 2023 the inflow was ¥140 bln so in July 2024 it is down -70% from then. China has been masking the stall by only referring to the 'year-to-date' results rather than the monthly outcome. But even that approach will catch up with them soon. Now YTD 2024 is down -50% on YTD 2023. That is massive.

And it is not just FDI. Beijing stops reporting equity flows starting today, a key sentiment indicator to track their NZ$14 tln equity market. The data to Friday showed the year-to-date flows turning negative. So the rush seems to be on to get out. From here on, we just won't know how fast it develops. Concerned about the negativity, China told fund houses to stop displaying real-time mutual fund products’ net value. The last time it was available it wasn't good. But if it does turn positive, Beijing will be the first to tell us.

And the Middle Kingdom has had its weather/climate challenges this year too, more so than other large countries. The impact of floods, while common in China in summer, has grown more pronounced this year, affecting over 7 million people nationwide in July, when Beijing was struck by the worst rains in 140 years, after the capital's hottest June on record. The dramatic swings between extreme heat and intense rainfall have stressed China’s power grids and shut factories, while risking the country’s water security and causing widespread crop damage. Nationally, direct economic losses from natural disasters surged in July to almost NZ$10 bln in that one month, more than in January to June combined. There will be food security consequences.

Meanwhile, Taiwan reported its Q2-2024 GDP expansion at +5.1%. But that was down from +6.6% on Q1-2024 even if it was up from +1.4% in the same quarter a year ago. Beijing is probably looking on in jealousy.

In Japan, profits topped analyst forecasts for 70% of surveyed Japanese companies in the April-June quarter, led by the vehicle and artificial intelligence fields. Many are benefiting from the tailwind of the weak yen.

In India, 19 or their 38 states are running 3%-to-GDP deficits or more in their bids to shine economically. That is raising the national public debt sharply. Delhi is concerned and tightening up what is permissible. And the central government is having to restrain itself to cover aggressive state deficit spending. The catchup of their infrastructure deficit is essentially driving the pressure.

In the US the University of Michigan consumer sentiment survey index rose more than expected with its first increase in five months. The expectations index improved (the highest in four month