China factory slide intensifies; economists say UK faces worst recession in G7 – business live

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The New Year has started with a warning from the International Monetary Fund’s head, Kristalina Georgieva, that a third of the global economy will be in recession this year, and that 2023 is going to be tougher than last year. Economists are warning that the UK faces the worst and longest recession among G7 countries.

According to the FT’s annual survey of leading UK-based economists (a poll of 101 analysts), a a clear majority said the inflationary shock caused by the Covid pandemic and Russia’s war in Ukraine would persist longer in the UK elsewhere, forcing the Bank of England to keep interest rates high and the government to run a tight fiscal ship. More than four-fifths expect the UK to lag other major economies, with the UK economy already shrinking.

John Philpott, an independent labour market economist, told the FT:

The 2023 recession will feel much worse than the economic impact of the pandemic.

In China, factory activity declined at a sharper pace in December as surging Covid infections disrupted production and held back demand, after Bejing removed most Covid restrictions, according to a survey.

The Caixin/Markit manufacturing purchasing managers’ index fell to 49 in December from 49.4 in November. It has been below the 50 mark that separates growth from contraction for five months. The reading was the lowest since September, but slightly better than expected. China’s larger official PMIM survey on Saturday showed a much sharper contraction, with the activity index falling to the lowest in nearly three years.

In the first week of the year, we will get the minutes of the last US Federal Reserve meeting (on Wednesday), US jobs data on Friday, and the Opec oil cartel will also meet.

Some Asian stock markets bounced back from earlier losses, with Hong Kong’s Hang Seng up 1.6% and the Shanghai Composite rising 0.9% while Japan was closed for a holiday. However, the Australian market lost 1.3% and the South Korean Kospi slipped 0.3%.

Naeem Aslam, chief market analyst at trading platform Ava Trade, says:

2023 has started with further escalation of tensions between Russia and Ukraine as a missile strike on a Russian military facility in the occupied territory in Ukraine killed 63 troops. This is more than likely to have an even more aggressive response from Russia. Overall, it doesn’t look like 2023 has started with a downshift in tensions between the two countries, and it is more than likely that the situation may actually become even worse after the current incident before becoming better.

The Agenda

• 8.55am GMT: Germany unemployment for December (forecast: 15,000, 5.6% rate)

• 9.30am GMT: UK S&P Global/CIPS Manufacturing PMI final for December (forecast: 44.7)

• 1pm GTM: Germany Inflation for December (forecast: 9.1%)

• 2.45pm GMT: US S&P Global Manufacturing PMI final for December