The world’s No. 2 economy cannot ride fast forever. The most recent growth figures raised even bigger doubts that they usually do.
But, the Chinese authorities still have room to stimulate the economy.
The doubts about China’s growth come from a growing number of internal and external figures:
- PMIs: Both the official PMI and the independent HSBC / Markit figure show that manufacturing is flat – not growing. The unofficial figure is lower. The new orders component is the more worrying part, as it indicates future deterioration.
- Oil: The demand for oil fell by 1.9% in June. This is quite surprising in a country that is experiencing rapid growth and an ominous sign.
- Electricity: Another source of energy, electricity, also fell. China produced 393.4 billion kilowatt-hours, off slightly from 396.8 billion from the same month last year.
- Inflation falling: Not so long ago, China was battling rising prices of food and other products and raised the rates to fight this phenomenon. Recent official figures show that China has inflation under control. This may sound like good news, but it is also a sign of economic slowdown, that probably began in June.
- Unemployment rising?: According to somewhat anecdotal evidence, unemployment is rising in China. This could trigger social unrest. However, there is no substantial evidence of employment issues. Not yet.
- China cut its interest rate at the beginning of July. Why would they do it if the situation is so good? More cuts in the interest rate and the RRR are likely later this year, and could be seen also in August.
Rebalancing: China is expected to move from an investment / export model to more services, innovation and internal consumption. There are early signs that this may be starting to happen. The process is undoubtedly long. The big questions are: a) if the authorities will push harder for this rebalancing and b) if they are able to do so.
We will probably see more action in August, but an answer to the questions above will probably wait.
It’s important to note that China is not the only large emerging economy that is suffering. The troubles in the Indian economy are felt in the value of the rupee, and the global slowdown also in South Africa, that made a surprising rate cut.
This article is part of the Forex Monthly Outlook. You can download it by joining the newsletter in the form below, which appears on any article on Forex Crunch.
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