Whoever claimed “decoupling” from Western markets would save Asian economies?
Bloomberg reports Thursday that the bottom dropped out of Japan’s export industry in December, with exports diving a record 35 per cent year on year, while China’s economy grew at the slowest pace in seven years as the global recession dragged down exports, increasing pressure for more government spending and lower interest rates . Chinese GDP grew 6.8 per cent in the fourth quarter from a year earlier, after a 9 per cent gain in the previous three months, the statistics bureau said in Beijing on Thursday.
We’ll return to both themes later on FT Alphaville, and in the Long Room, but for now, we’re giving you this timely Lex note from earlier this week:
Ouch. It may not be a recession in technical terms, but China’s data dump this week is expected to show a pretty hard landing occurred in the fourth quarter. Private sector economists reckon economic growth decelerated to about 6-7.5 per cent on a year-on-year basis, or about half 2007’s 13 per cent rate. Compared with the third quarter, on a seasonally adjusted annualised basis, output probably contracted.
The one-time engine of global economic growth has been spluttering as a result of dented global demand for exports and over-zealous tightening policy at home. A hard landing, like recession, adds new fear to the mix. With shares and real estate worth sharply less, unemployment rising and deflation round the corner, companies and households are already reluctant spenders; household savings deposits rose by more than 20 per cent in the year to November. Foreign hot money, too, has turned tail as currency appreciation abated. Opacity on foreign exchange reserves makes it difficult to draw watertight conclusions, but reserve accumulation last month heavily undershot the sum of the trade surplus and foreign direct investment. Further adjusting for estimated valuation and other changes, Stone & McCarthy Research Associates estimate that unexplained residual outflows totalled about $120bn-$140bn in the fourth quarter.
For bulls, this is all part and parcel of being a paid-up member of the global economy: growth and liquidity cycles wax and wane. Last month’s loan numbers were reassuringly robust, showing a 19 per cent year-on-year increase in local currency lending (flattered by a low base) and the upswing should see investment return to form. That looks overly optimistic given other data points. The sharp deceleration in industrial production, which by November was already running at one-third early 2008 levels and likely fell further last month, hardly sets the case for corporate investment. Persistent over-capacity underlines the point. China’s days of double-digit growth are probably over.