China Economic Update – May 2013

Partial economic indicators lack any strong indication that conditions are improving in China. While indicators for April came in broadly consistent with expectations, the market has revised expectations lower in response to a run of disappointing outcomes since the start of the year

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  • Partial economic indicators lack any strong indication that conditions are improving in China. While indicators for April came in broadly consistent with expectations, the market has revised expectations lower in response to a run of disappointing outcomes since the start of the year. Year-ended growth in production ticked higher, but remains subdued. Investment eased moderately, while real retail sales growth was unchanged at relatively subdued levels. Exports have improved, but there is still some question over the accuracy of the data.
  • CPI inflation remains well within acceptable levels, but strong credit growth – while a positive sign for future GDP growth – may be of concern to policy makers. Nevertheless, we expect interest rates to remain on hold this year.
  • We revised our forecast for China’s GDP growth down further to 7¾% in 2013 and 7½% in 2014 (both were 8% previously). This outlook requires an improvement in activity over coming months.
  • This month we included a closer look at ‘hot money’ inflows, which have picked up again after a short reprieve in 2012. Authorities have responded, but an uncertain global environment could be the determining factor.

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