The China outlook is at a rather delicate point right now – although in truth it has been that way for months if not longer. The twin spectres of contracting manufacturing and stubborn inflation have both turned around ever so slightly in recent weeks. But with growth also moderating a little faster than expected, it’s too early for a soft landing to be predicted with great confidence.
Adding to the mixed picture, Standard Chartered – which has been sceptical but basically positive on China – has revised its GDP growth forecasts for 2012 — from 10 per cent down to 8.5 per cent.
There are two main reasons for our call. Inflation has remained more elevated and domestic growth momentum has slowed more gradually in 2011 than we forecast. This has delayed the turn in policy – China’s monetary policy was not loosened in Q3-2011, as we expected – and thus also the turn in the economic cycle. That said, momentum has clearly been lost in manufacturing growth, and CPI inflation has now peaked, we believe.
Yes, most countries would give their right arm for 8.5 per cent, et cetera… but it does look a little anaemic against the past few years:
StanChart’s China economists Stephen Green and Wei Li see the risks to growth rather than inflation — the latter, they write, should ease as oil price pressure subsides in a soft global economy, and the pig problem, they add, will likely be addressed by rising production.
Therefore they see little risk of tightening before 2013, but any stimulative measures next year will likely be new projects in irrigation, housing and the like — possibly supported by the banks, to get around the local government financing issues.
This chart of GDP growth components is fascinating:
Look at net exports: a significant net negative in 2009, as restocking and recession took hold, but only a small contributor to growth in 2010, in the broader scheme of things. And although the net number is forecast as negative for 2011 and beyond, Green and Wei say that gross export growth still contributes to GDP growth as it creates demand for manufacturing investment.