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Tuesday 21 October 2008
Economists React: China’s Growth Is Slowing, Not Slumping
Economists and others weigh in on China’s sharper-than-expected economic slowdown. The country’s GDP grew 9% in the third quarter from a year earlier, slower than the second quarter’s 10.1% gain.
Economists React: China’s Growth Is Slowing, Not Slumping
Economists and others weigh in on China’s sharper-than-expected economic slowdown. The country’s GDP grew 9% in the third quarter from a year earlier, slower than the second quarter’s 10.1% gain.
20 October 2008
China’s economic growth momentum eased notably in [the third quarter], as a combination of slowing export demand and previous policy restraint temper growth. … The easing in the export sector could in turn lower employment income growth and weigh on domestic consumption, and drag private-sector investment growth. … With mounting external risks, the Chinese policy makers are well aware of the importance of more aggressive macro policy support to prevent overall economic growth from slipping significantly below trend (which is generally viewed as around 9%) for an extended period. – Frank FX Gong, J.P. Morgan
The slowdown was sharper than suggested by trends in consumption, investment and exports, leading us to believe that destocking was a main driver of the deceleration. It seems that the well-telegraphed financial crisis in the developed markets hurt sentiment amongst Chinese producers, before the shock actually hits the real economy. Producers made adjustments in anticipation of the inevitable global recession, and cut back on production despite the still resilient domestic demand. – Qing Wang, Morgan Stanley
China continues to be well-placed to avoid following the western world into the economic abyss. The mainland economy continues to decelerate, but differs from the US and Europe in several key ways: 1) no loss of confidence in the Chinese financial system; 2) no liquidity problems and no risk of bank insolvency; 3) low levels of external debt and very minor exposure to foreign mortgage-related investments; 4) export growth will continue to slow but will not disappear, and is in any event not a critical growth driver; 5) domestic consumption remains very strong; 6) with raw material and energy costs falling, we expect industrial profits to rebound early next year; 7) Beijing has the means to keep propping up investment; 8) should GDP growth appear likely to slow beyond what we believe is Beijing’s 2009 target of 8%, the government has the fiscal capacity and political will to quickly implement an aggressive stimulus program. – Andy Rothman, CLSA
The GDP figure isn’t particularly useful. It offers little granularity and is best used as a lagging indicator on the ‘direction’ of growth. It is also unclear to what extent Olympic-related factory closures and transport disruptions depressed the [year-to-year] growth rate. Moreover, there is tension in the monthly data. September’s PMI, fixed investment, and iron ore import growth all rose. But industrial production and steel production growth fell. The latter two may be signaling problems specific to the steel sector rather than the broader economy. … The upshot is that growth is slowing, but not yet slumping. – Ben Simpfendorfer, Royal Bank of Scotland
China has been battered by the global storm. The next twelve months will not be any easier. In fact, the worst is yet to come, as more economies around the world are following the U.S. into recession. Investment growth will certainly slow going into 2009, as both domestic and foreign investors struggle to find funding. … Foreign direct investment is moderating. Risk aversion has been rising, and investors’ appetite for emerging markets has weakened. But thanks to China’s still-promising growth potential, foreign investment has remained relatively solid compared to other emerging markets. … Exports have inevitably cooled. However, China has been able to contain its import bill, which has kept the trade balance healthy. … Despite desperate government efforts to stimulate the economy, it will be difficult to revive spending by the middle-class households, as the stock market tumble has significantly damaged their confidence. – Sherman Chan, Moody’s Economy.com
The lower-than-expected China’s [third-quarter] GDP growth could add to pessimism. But it’s our view that the market underestimated the impact of Olympics and the holiday effect, and we expect a rebound of GDP growth in [the fourth quarter] to 9.9%. We reckon the real challenge is in 2009 as some major economies fall into recessions, but we think China’s policy reactions could be quick and effective to fend off a big slowdown, and we believe China could achieve a growth above 8.5% next year. – Ting Lu, Merrill Lynch
The moderation in [year-to-year] GDP growth was mainly driven by a declining contribution from domestic demand, as the nominal trade surplus grew by 13.8% [year-to-year] in [the third quarter] versus -12.1% [year-to-year] in [the second quarter]. … We expect the Chinese government to continue to loosen policies on the back of fast slowing activity growth and dissipating inflationary pressures. Over the past weekend, the government announced broad directions for rural reforms. We view these proposed reforms as beneficial to China’s long-term growth, though the short-term impact on growth may be limited. – Hong Liang, Goldman Sachs
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Economists React: China’s Growth Is Slowing, Not Slumping
Economists and others weigh in on China’s sharper-than-expected economic slowdown. The country’s GDP grew 9% in the third quarter from a year earlier, slower than the second quarter’s 10.1% gain.
20 October 2008
China’s economic growth momentum eased notably in [the third quarter], as a combination of slowing export demand and previous policy restraint temper growth. … The easing in the export sector could in turn lower employment income growth and weigh on domestic consumption, and drag private-sector investment growth. … With mounting external risks, the Chinese policy makers are well aware of the importance of more aggressive macro policy support to prevent overall economic growth from slipping significantly below trend (which is generally viewed as around 9%) for an extended period. – Frank FX Gong, J.P. Morgan
The slowdown was sharper than suggested by trends in consumption, investment and exports, leading us to believe that destocking was a main driver of the deceleration. It seems that the well-telegraphed financial crisis in the developed markets hurt sentiment amongst Chinese producers, before the shock actually hits the real economy. Producers made adjustments in anticipation of the inevitable global recession, and cut back on production despite the still resilient domestic demand. – Qing Wang, Morgan Stanley
China continues to be well-placed to avoid following the western world into the economic abyss. The mainland economy continues to decelerate, but differs from the US and Europe in several key ways: 1) no loss of confidence in the Chinese financial system; 2) no liquidity problems and no risk of bank insolvency; 3) low levels of external debt and very minor exposure to foreign mortgage-related investments; 4) export growth will continue to slow but will not disappear, and is in any event not a critical growth driver; 5) domestic consumption remains very strong; 6) with raw material and energy costs falling, we expect industrial profits to rebound early next year; 7) Beijing has the means to keep propping up investment; 8) should GDP growth appear likely to slow beyond what we believe is Beijing’s 2009 target of 8%, the government has the fiscal capacity and political will to quickly implement an aggressive stimulus program. – Andy Rothman, CLSA
The GDP figure isn’t particularly useful. It offers little granularity and is best used as a lagging indicator on the ‘direction’ of growth. It is also unclear to what extent Olympic-related factory closures and transport disruptions depressed the [year-to-year] growth rate. Moreover, there is tension in the monthly data. September’s PMI, fixed investment, and iron ore import growth all rose. But industrial production and steel production growth fell. The latter two may be signaling problems specific to the steel sector rather than the broader economy. … The upshot is that growth is slowing, but not yet slumping. – Ben Simpfendorfer, Royal Bank of Scotland
China has been battered by the global storm. The next twelve months will not be any easier. In fact, the worst is yet to come, as more economies around the world are following the U.S. into recession. Investment growth will certainly slow going into 2009, as both domestic and foreign investors struggle to find funding. … Foreign direct investment is moderating. Risk aversion has been rising, and investors’ appetite for emerging markets has weakened. But thanks to China’s still-promising growth potential, foreign investment has remained relatively solid compared to other emerging markets. … Exports have inevitably cooled. However, China has been able to contain its import bill, which has kept the trade balance healthy. … Despite desperate government efforts to stimulate the economy, it will be difficult to revive spending by the middle-class households, as the stock market tumble has significantly damaged their confidence. – Sherman Chan, Moody’s Economy.com
The lower-than-expected China’s [third-quarter] GDP growth could add to pessimism. But it’s our view that the market underestimated the impact of Olympics and the holiday effect, and we expect a rebound of GDP growth in [the fourth quarter] to 9.9%. We reckon the real challenge is in 2009 as some major economies fall into recessions, but we think China’s policy reactions could be quick and effective to fend off a big slowdown, and we believe China could achieve a growth above 8.5% next year. – Ting Lu, Merrill Lynch
The moderation in [year-to-year] GDP growth was mainly driven by a declining contribution from domestic demand, as the nominal trade surplus grew by 13.8% [year-to-year] in [the third quarter] versus -12.1% [year-to-year] in [the second quarter]. … We expect the Chinese government to continue to loosen policies on the back of fast slowing activity growth and dissipating inflationary pressures. Over the past weekend, the government announced broad directions for rural reforms. We view these proposed reforms as beneficial to China’s long-term growth, though the short-term impact on growth may be limited. – Hong Liang, Goldman Sachs
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