Daily Update: February 8, 2023

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

A Rising China Raises Some Boats

For two decades, China has served as the growth engine for the global economy. Even last year, with COVID-19 restrictions in place, the country’s gross domestic product rose 3% — an enviable level of growth for most developed economies. The lifting of COVID-19 restrictions in China will have profound growth implications for the Chinese economy and those of its major trading partners. 

S&P Global Ratings forecasts GDP to grow 4.8% in China this year. The projected improvement over 2022’s growth numbers is due to improved consumer and business activity. One area of concern for the Chinese economy is constraints on hiring and workforce productivity driven by illness. The strongest growth is expected in areas related to consumption and mobility, while infrastructure and real estate are expected to lag due to challenges in the country’s property sector.

According to S&P Global Market Intelligence, business confidence in China has surged to its highest level in 12 years, indicating that business leaders expect a strong year, assuming labor shortages improve. In Hong Kong, business confidence hit an all-time high at the beginning of 2023. The city’s business output and new orders jumped in January, leading to greater optimism.

China’s trading partners also have reasons for optimism. According to a detailed analysis by S&P Global Ratings, countries such as Vietnam and Thailand stand to benefit the most from the lifting of restrictions. In a good year, Chinese tourism can account for about 10% of the two countries’ GDPs. Countries such as Chile, Peru, Brazil and South Africa, which export metals related to infrastructure to China, have already seen modest growth in prices. However, uncertainty in the Chinese property sector could restrict infrastructure investment.

Trade in goods related to manufacturing is also expected to improve, although this may be offset by a decline in global demand for manufactured goods. Nevertheless, increased mobility in China should alleviate some of the supply chain issues that have bedeviled the global economy for the last few years. This will benefit Vietnam, Thailand, Malaysia, the Philippines and Mexico.

While exports increased in India, the Philippines, Vietnam and Mexico at the start of the year, in general, trade flows for most countries continued their decline in January. Much of the decline in exports can be attributed to a downturn in global factory output caused by limited demand and a reduction in inventory levels for many companies. 

As in other countries recovering from the global pandemic, increased demand for consumer goods and services and a shortage of labor may create inflationary pressures. Louis Kuijs, chief economist for Asia-Pacific at S&P Global Ratings, expects any increase in inflation in China to be moderate and does not believe that the People’s Bank of China will raise its policy rate this year.

Today is Wednesday, February 8, 2023, and here is today’s essential intelligence.

Written by Nathan Hunt.

Economy

California’s Fiscal 2024 Executive Budget Proposal Closes A Projected $22.5 Billion Budget Gap

The governor's executive budget proposal for the fiscal year ending June 30, 2024, forecasts $29.5 billion lower revenue during combined fiscal years 2023 and 2024 than assumed in last year's enacted fiscal 2023 budget. Fiscal 2024 general fund revenue and transfers are now projected at $211.1 billion, compared with $233.6 billion of projected 2024 revenue when the fiscal 2023 budget was adopted. The new 2024 executive budget estimates a $22.5 billion budget gap will need to be closed, including fiscal 2024 and the remaining months of fiscal 2023.

—Read the report from S&P Global Ratings

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Capital Markets

Balancing The Scales In U.K. Equity With The S&P 500

Our recent paper Why Does the S&P 500 Matter to the U.K.? argues that the S&P 500 presents an opportunity for U.K. investors to diversify their revenue exposure and sector weights across geographies. Since British investors typically suffer from a substantial home bias, such diversification presents an opportunity to improve the risk/return profile of a domestic equity allocation.

—Read the article from S&P Dow Jones Indices

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Global Trade

Nickel CBS January 2023 – Price Falls On Tsingshan's New Supply Plans

In its monthly Nickel Commodity Briefing Service, or CBS, report, S&P Global Commodity Insights discusses the nickel market within the broader macroeconomic environment and provides rolling five-year supply, demand and price forecasts. The London Metal Exchange three-month, nickel price dropped to $26,690 per tonne Jan. 17, the lowest since end-November 2022, on news that Tsingshan Holding Group Co. Ltd. will add Class 1 primary nickel to its diverse production mix.

—Read the article from S&P Global Market Intelligence

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Sustainability

Beyond ESG With The Evolving DEI Landscape

The role of Diversity, Equity and Inclusion and Corporate Responsibility teams has evolved in both scope and responsibilities. DEI work has expanded to include a more integrated approach to recruitment and training in addition to increased communication with both stakeholders and investors. The conversation also has broadened to include the financial impact of DEI strategies. Join S&P Global Sustainable1 for the next episode in the Beyond ESG webinar series to hear from market specialists across the global value chain examine critical topics.

—Subscribe for the webinar from S&P Global Sustainable1

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Energy & Commodities

ISO-NE Capacity Auction To Renew Downward Trend

Looking ahead to next month's scheduled 17th Forward Capacity Auction for the reliability year 2026/2027, expected high levels of renewable growth combined with low load growth and few retirements drive a low ISO New England capacity price outlook in the S&P Global Market Intelligence Power Forecast. The ISO-NE states of Massachusetts, Rhode Island, Connecticut, Vermont and Maine have renewable portfolio standards with specific requirements for offshore wind in Rhode Island, Connecticut and Massachusetts.

—Read the article from S&P Global Market Intelligence

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Technology & Media

Total Automation: Tech For Intelligent Enterprise Execution, 2023 Research Agenda, Part 1

Enterprises that engage in total automation can create new forms of competitive advantage by transforming their IT infrastructure and applications into data-gathering assets able to create a constant state of awareness of their digital businesses. Several tools and technologies have come to market in recent years to facilitate automation of a variety of business and IT processes and workforce activities. The technologies and vendors in these markets continue to converge.

—Read the article from S&P Global Market Intelligence

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Upcoming Events

Finance At CERAWeek 2023: Evolving Energy Transition Drives Capital Evolution

Join this live webinar and prepare for more than three dozen dedicated financial and capital markets sessions across every segment, fuel type and industry sector at CERAWeek 2023.

—Register for the webinar from CERAWeek

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