China’s economy is set to exit a seven-quarter slowdown as the government rolls out infrastructure projects and limited inflation lets officials hold off from tightening monetary policy.
The National Bureau of Statistics will report tomorrow that gross domestic product expanded 7.8 percent in the fourth quarter from a year earlier, according to the median estimate of 53 economists surveyed by Bloomberg News.
That’s up from a three-year low of 7.4 percent in the previous period. The risk is that the rebound may fade in the second half as the boost from railways and road projects ebbs and the government grapples with rising inflation and the expansion of shadow banking.
While the nation is set to reverse its slide in economic growth, the pace remains short of the 10 percent average of the past two decades as higher wages and weakness in global demand limit export gains.
“The current recovery is being driven mostly by monetary and fiscal policy easing,” said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong. “Once the momentum of policy easing slows, growth may trend down again.”
Tomorrow’s report will also include the latest monthly data. Factory output probably rose 10.2 percent in December from a year earlier, up from 10.1 percent in November, while retail sales advanced 15.1 percent after a 14.9 percent gain the prior month, according to median analyst estimates.
Investment Pace
Fixed-asset investment excluding rural areas may have increased 20.7 percent for the full year, based on economist forecasts, the same pace as in the first 11 months of 2012. Improving investor confidence in China’s outlook has lifted stocks and the currency.
The Shanghai Composite Index (SHCOMP), the nation’s benchmark gauge, has advanced 18 percent from an almost four-year low on Dec. 3.
The yuan traded this week at a 19-year high against the dollar. Zhang sees the recovery fading, projecting expansion of 7.3 percent in the second half after 8.1 percent in the first half.
The central bank may raise interest rates twice in the second half to limit inflation, said Zhang, who previously worked for the International Monetary Fund.
“Policy will turn gradually from the current very loose stance to a more cautious one,” he said. Inflation accelerated more than forecast to 2.5 percent in December, statistics bureau data showed on Jan. 11, while new local-currency loans had a greater-than-estimated drop.
A broader measure of financing surged 28 percent, highlighting the economic rebound’s increasing dependence on non-bank credit that may add risks.
Data Skepticism
Analysts at companies including UBS AG and Australia & New Zealand Banking Group Ltd. questioned an unexpectedly large increase in December’s exports, saying it may fail to capture the true picture.
“The recovery so far is led by accelerating public investment and stronger exports to Asian countries,” said Joy Yang, chief Greater China economist at Mirae Asset Securities (HK) Ltd., a former IMF researcher.
“However, we have not seen clear signs of recovery in the private sector and in addition, consumption this year will likely be capped by slower wage growth and rising unemployment pressures.”
Auto sales in China rose 4.3 percent to 19.3 million last year, missing official projections for deliveries of as many as 20 million made in July.
Nike Orders
Nike Inc., the world’s largest sporting-goods company, said Dec. 20 that it continued to see its business in China deteriorate as orders decreased 7 percent in its fiscal second quarter ended Nov. 30.
The central bank has paused from its monetary easing since July after two interest-rate cuts and three reductions in lenders’ reserve requirements starting in November 2011.
At the same time, the government has accelerated investment-project approvals, trimmed fees for exporters and increased spending on infrastructure.
Economists are split on whether China will ease monetary policy this year as the ruling Communist Party completes a once- a-decade leadership transition.
While 12 of 19 analysts surveyed last month forecast a cut in banks’ reserve requirements, 13 of 28 see no change in the benchmark lending rate, with nine projecting an increase and six seeing a reduction.
Full-year expansion in 2012 was probably 7.7 percent, the weakest since 1999, and may pick up to 8.1 percent this year before slowing to 8 percent in 2014, based on analyst forecasts.
China has eschewed the scale of the 4 trillion yuan ($586 billion) fiscal stimulus announced in 2008 and eased monetary policy less than economists expected last year.
Growth Quality
Authorities will seek a higher “quality and efficiency” of growth in 2013 while deepening reforms in the economy, according to a Xinhua News Agency report on Dec. 16 after the annual central economic work conference in Beijing.
Government officials seem satisfied with growth of around 7 percent to 8 percent as suggested by their policy approach, said Wang Qinwei, a London-based economist with Capital Economics Ltd. who previously worked at the People’s Bank of China.
“A large stimulus would make the domestic investment imbalance worse and with credit growth peaking over the last couple of months, we expect the recent economic momentum to fade later this year.”
bloomberg.com
The National Bureau of Statistics will report tomorrow that gross domestic product expanded 7.8 percent in the fourth quarter from a year earlier, according to the median estimate of 53 economists surveyed by Bloomberg News.
That’s up from a three-year low of 7.4 percent in the previous period. The risk is that the rebound may fade in the second half as the boost from railways and road projects ebbs and the government grapples with rising inflation and the expansion of shadow banking.
While the nation is set to reverse its slide in economic growth, the pace remains short of the 10 percent average of the past two decades as higher wages and weakness in global demand limit export gains.
“The current recovery is being driven mostly by monetary and fiscal policy easing,” said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong. “Once the momentum of policy easing slows, growth may trend down again.”
Tomorrow’s report will also include the latest monthly data. Factory output probably rose 10.2 percent in December from a year earlier, up from 10.1 percent in November, while retail sales advanced 15.1 percent after a 14.9 percent gain the prior month, according to median analyst estimates.
Investment Pace
Fixed-asset investment excluding rural areas may have increased 20.7 percent for the full year, based on economist forecasts, the same pace as in the first 11 months of 2012. Improving investor confidence in China’s outlook has lifted stocks and the currency.
The Shanghai Composite Index (SHCOMP), the nation’s benchmark gauge, has advanced 18 percent from an almost four-year low on Dec. 3.
The yuan traded this week at a 19-year high against the dollar. Zhang sees the recovery fading, projecting expansion of 7.3 percent in the second half after 8.1 percent in the first half.
The central bank may raise interest rates twice in the second half to limit inflation, said Zhang, who previously worked for the International Monetary Fund.
“Policy will turn gradually from the current very loose stance to a more cautious one,” he said. Inflation accelerated more than forecast to 2.5 percent in December, statistics bureau data showed on Jan. 11, while new local-currency loans had a greater-than-estimated drop.
A broader measure of financing surged 28 percent, highlighting the economic rebound’s increasing dependence on non-bank credit that may add risks.
Data Skepticism
Analysts at companies including UBS AG and Australia & New Zealand Banking Group Ltd. questioned an unexpectedly large increase in December’s exports, saying it may fail to capture the true picture.
“The recovery so far is led by accelerating public investment and stronger exports to Asian countries,” said Joy Yang, chief Greater China economist at Mirae Asset Securities (HK) Ltd., a former IMF researcher.
“However, we have not seen clear signs of recovery in the private sector and in addition, consumption this year will likely be capped by slower wage growth and rising unemployment pressures.”
Auto sales in China rose 4.3 percent to 19.3 million last year, missing official projections for deliveries of as many as 20 million made in July.
Nike Orders
Nike Inc., the world’s largest sporting-goods company, said Dec. 20 that it continued to see its business in China deteriorate as orders decreased 7 percent in its fiscal second quarter ended Nov. 30.
The central bank has paused from its monetary easing since July after two interest-rate cuts and three reductions in lenders’ reserve requirements starting in November 2011.
At the same time, the government has accelerated investment-project approvals, trimmed fees for exporters and increased spending on infrastructure.
Economists are split on whether China will ease monetary policy this year as the ruling Communist Party completes a once- a-decade leadership transition.
While 12 of 19 analysts surveyed last month forecast a cut in banks’ reserve requirements, 13 of 28 see no change in the benchmark lending rate, with nine projecting an increase and six seeing a reduction.
Full-year expansion in 2012 was probably 7.7 percent, the weakest since 1999, and may pick up to 8.1 percent this year before slowing to 8 percent in 2014, based on analyst forecasts.
China has eschewed the scale of the 4 trillion yuan ($586 billion) fiscal stimulus announced in 2008 and eased monetary policy less than economists expected last year.
Growth Quality
Authorities will seek a higher “quality and efficiency” of growth in 2013 while deepening reforms in the economy, according to a Xinhua News Agency report on Dec. 16 after the annual central economic work conference in Beijing.
Government officials seem satisfied with growth of around 7 percent to 8 percent as suggested by their policy approach, said Wang Qinwei, a London-based economist with Capital Economics Ltd. who previously worked at the People’s Bank of China.
“A large stimulus would make the domestic investment imbalance worse and with credit growth peaking over the last couple of months, we expect the recent economic momentum to fade later this year.”
bloomberg.com
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