WASHINGTON China's economy is picking up steam while the recovery in much of the rich world is showing some worrisome signs of fatigue.
On Thursday, China is expected to report a 20 percent year-over-year jump in industrial output for December, which would be the fastest pace in close to four years.
Compare that with the United States, where December's industrial production was down 2 percent from a year earlier.
It is no secret that China's economy is stronger than that of the developed world. Its consumers were never as heavily indebted as those in the United States. Its banks dodged the credit crisis while many of those in the United States and Europe are still staggering under bad loans.
Indeed, Barclays Capital economist Wensheng Peng thinks China's economy grew 11.4 percent in the fourth quarter from a year earlier, which would be a big gain even for fast-growing China and well ahead of the third-quarter advance of 8.9 percent. The gross domestic product data is also due this week.
China has certainly benefited from a recovery in the United States, a vital trading partner for China's export-driven economy. The U.S. economy appears to have finished 2009 on a strong note, perhaps growing at an annual rate of more than 5 percent in the fourth quarter.
Still, it probably did not register positive year-on-year growth and questions on the recovery's sustainability remain -- casting some doubt on whether China can keep up its own growth rate. The government's initial GDP estimate won't be released until later in January.
Dan Meckstroth, an economist with the Manufacturers Alliance/MAPI near Washington, said the uncertainty about the recovery helps explain why U.S. manufacturing activity has been relatively modest even though economic growth appears to be running well ahead of the long-term trend.
He said factory output was showing a "saw tooth pattern" with periods of growth followed by setbacks because companies were primarily restocking bare shelves rather than responding to any big increase in consumer spending.
Meckstroth estimated that if fourth-quarter GDP rose at a 5 percent pace, four percentage points probably came from shifts in inventories rather than a solid pick-up in private demand.
"The initial burst of growth reflected the rebound from a severe recession, but now the basic fact is that consumers are impaired with debt, jobs are still declining, and nonresidential construction activity will decline most of the year," he said.
There is reason to believe U.S. demand will stay subdued for a while, at least in terms of consumer spending, which accounts for roughly 70 percent of the economy.
A report on U.S. consumer confidence last week showed that expectations of what is to come fell for the third time in the past four months.
Jennifer Lee, a senior economist with BMO Capital Markets, said that until the unemployment rate drops substantially below its current level of 10 percent, "consumers will remain uneasy, a mindset that will be reflected in their spending patterns."
Europe's economy appears to be fading as well. The most worrisome evidence comes from Germany, Europe's largest economy. German Economy Minister Rainer Bruederle said on Friday that growth in the first quarter of 2010 could be close to zero.
That may weigh on investor and analyst sentiment. A closely watched index from think-tank ZEW, due on Tuesday, is expected to decline for a fourth consecutive month.
In the United States and Europe, high unemployment and sluggish factory growth have helped to keep inflation in check, even though oil prices have been creeping higher.
China's inflation rate appears to be accelerating, and some economists have raised concerns about the economy overheating, particularly as property prices soar.
Economists are looking for a sharp rise in China's December consumer price index to a 1.5 percent annual pace from 0.6 percent in the previous month. Euro zone inflation was a more modest 0.3 percent on a monthly basis, while in the United States it rose at a tame 0.1 percent rate last month.
The People's Bank of China unexpectedly raised its reserve requirement ratio last week, a sign that it was wary of a spike in lending, but Barclays' Peng said that probably did not herald the beginning of an aggressive tightening cycle.
He still thinks China will not raise its benchmark interest rates until the second half of 2010, but acknowledged that a swifter rise in inflation might force the central bank's hand.
(Editing by Leslie Adler)
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