Kia ora,

Welcome to Wednesday’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 the IMF is warning the worst of the current economic turmoil is yet to come.

However first in the US, retail sales last week on a same store basis fell away noticeably from the same week a year ago. Inflation can barely explain the 'growth' in this latest survey.

But American consumer inflation expectations for the year ahead moderated again for a third consecutive month, now at 5.4% in September, the lowest in a year, and down from 5.7% in August. The long-run average inflation expectation is 3% so there is still a long way to go to get these down from elevated levels, but five-year-ahead expectations are only 2.2% pa. Their median home price growth expectations declined marginally to just 2%, its lowest reading since June 2020. And expectations for the cost of medical care is also seen slowing but to a still-high 9.2%. On the other hand, consumers expect prices to rise faster for petrol.

US central bank policies do seem to be working on getting these expectations reset. But consumers remain unhappy with them (which is par for the course). Nobody likes their medicine, even when it seems to be working.

In China, their September data shows they pumped out a lot of bank debt to support their economy, in fact twice as much as analysts were expecting and a new record high. This comes as authorities are supporting a slowing economy that is being hit by a property crisis and an unfortunate resurgence of pandemic cases.

In the UK they too are pumping out vast additions of central bank support as their financial crisis extends.

In Australia, business sentiment fell in September even as business conditions improved. The NAB business confidence index fall was the lowest reading since June, amid concerns over rising interest rates and a gloomy global outlook. Sentiment fell in retail, wholesale, transport, recreation & personal services, and finance, business & property sectors. Meantime, business conditions rose, being above their pre-COVID peak, with sales surging while both profitability and employment were unchanged but stayed elevated.

The IMF says the world's economy is seen expanding +3.2% (real) this year, in line with its July forecast, but expects it to grow at a slower +2.7% in 2023, down from 2.9% earlier predicted, according to their latest update of their World Economic Outlook. All this while global inflation is expected to run at a massive +8.8% this year. The 2022 forecast is actually a brave position to take given what others are suggesting. But even they say, "In short, the worst is yet to come, and for many people 2023 will feel like a recession." China's stumbles are a key headwind for the global economy, they say.

The UST 10yr yield starts today at 3.89% and unchanged again. 

The price of gold will open today at US$1681/oz. This is up +US$13 from this time yesterday.

And oil prices start today down -US$2.50 from this time yesterday at just under US$88.50/bbl in the US while the international Brent price has fallen a bit more to be just over US$93.50/bbl.

The Kiwi dollar will open today at 56.5USc and a full +1c higher than this time yesterday. Against the Australian dollar we are +¼c higher at 89.1 AUc. Against the euro we are +½c higher at 57.8 euro cents. That all means our TWI-5 starts today at 67.1 and up about +90 bps.

The bitcoin price is now at US$19,169 and a mere -0.1% lower than this time yesterday. Volatility over the past 24 hours has been modest at just over +/- 1.3%.

You can find links to the articles mentioned today in our show notes.

And get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston and we’ll do this again tomorrow.