Episode Details

Kia ora,

Welcome to Friday’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.

And today we lead with news China and Japan seem to be in the process of swapping places.

But first, following a much better than expected rise in October, and driven by fast-rising credit card debt, the November American consumer debt levels corrected in November, falling -US$7.5 bln. Again, it was a sharpish pullback in credit card debt that drove the surprise November result. On the other hand, nonrevolving credit, which includes car loans and mortgages, saw a still-modest +2% rise, after small increases of +0.7% in October and +0.4% in September.

There were announced job cuts involving 39,000 American workers in December, much lower than November and only marginally different to December a year ago. For the full year employers announced 761,500 job cuts, the most since 2020, and prior to that pandemic year, the most since 2009. In 2024, 134,000 of those cuts were in the tech sector. But in terms of the 160 mln US labour market, these announced annual cut levels are a truly tiny 0.4%.

Across the Pacific in China, we noted yesterday that authorities there seem to have instituted a hard peg for the official yuan exchange rate to the USD. Now they have to defend that in open markets. Overnight they announced a massive ¥60 bln bill issue in Hong Kong in an effort to build demand for their under-pressure currency.

The battle against deflation is far from over too. China’s annual consumer inflation rate edged down to +0.1% in December from +0.2% in November, aligning with estimates and marking the lowest rise since March. It is now at a nine-month low. The latest result came amid a slight decline in food prices and a modest rise in non-food costs. But beef prices were down -13.8% for the year, lamb prices down -6.1%, and milk prices were down -1.6%.

Meanwhile, producer prices fell by -2.3% in December from a year ago, but that was their softest fall in four months. It was the expected fall.

And perhaps we should also note that, although there was little movement in the past 24 hours, the 30 year Chinese bond yield at 1.89% is now lower than the equivalent Japanese government bond at 2.30%. While it is not the case for other tenors, the shifting directions are the same - China down and Japan up. China is turning Japanese, and Japan is shifting out of its hard deflationary cycle.

In Japan, wages rose +3% in November from the same month a year ago, rising from the +2.6% increase seen in October and higher than market forecasts of a +2.7% gain. However, real wages adjusted for inflation and a key indicator of consumers' purchasing power fell by -0.3% year-on-year in November.

In India, they have downgraded their fast economic growth estimates. After growing +8.2% in the year to June 2024, they now say that will 'slow' to +6.4% in the year to June 2025. Apart from the pandemic period, that will be their slowest expansion in more than a dec