China: Economy in Recovery Mode

China

After a lacklustre first half performance, which saw growth average 7.6%, the Chinese economy started Q3 on a firmer footing and this strength has continued in August. An uptick in leading economic indicators, ranging from industrial production to fixed asset investment, retail sales and trade underscore the general upswing in activity and leaves little doubt the economy is now in full recovery mode. The government’s 7.5% growth target set for this year, which was previously under threat following two straight quarters of declining growth, now looks within reach as the economy shows renewed momentum. That said though, some analysts question the sustainability of the current upturn, especially since growth is being supported by a surge in credit which has started to moderate since the liquidity squeeze in June. Nonetheless, our panellists have revised upwards their growth forecasts to 7.6% for this year, while projections for 2014 have remained at 7.4% this month. Amongst the batch of upbeat data releases for August, the figure for industrial production was particularly encouraging given that output accelerated from 9.7% a month earlier to hit a 17-month high of 10.4%. Supporting the improving outlook for the sector, the official Purchasing Managers’ Index crept up from 51.0 in August to 51.1 in September. This reflected a pickup in output, new orders and export orders.

On the inflation front, consumer prices registered a modest increase of 2.6% (y-o-y) in August, which was slightly down on the 2.7% gain reported in July. Inflation remained subdued in spite of higher food costs arising from an increase in prices for vegetables and pork. The full-year figure is expected to average well below the official 3.5% target.

You can download a sample of Asia Pacific Consensus Forecasts at www.consensuseconomics.com.

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