Growth, inflation and labour market all easing
In this months economic update we revisit our outlook for the Chinese economy and what we can expect to see from the People’s Bank of China over the forecast horizon.
In this months economic update we revisit our outlook for the Chinese economy and what we can expect to see from the People’s Bank of China over the forecast horizon. The PBOC is in for another big year as it continues to face not only a challenging global environment, but an anticipated recovery in the domestic economy that we bring with it the renewed threat of inflation and overheating pressures. Markets will also be watching the central bank closely to see if it can maintain (or even ramp up) the progress of gradual financial development seen in recent years.
For some time now our expectation has been that the government’s recent program of investment stimulus would help to jump start the economy in H1 2013, before tapering off in the later stages of the year as public spending was scaled back and was only partly offset by improving external and private domestic demand. While we still see this as the most likely scenario for the growth trajectory, recent partial indicators suggest that the anticipated acceleration in growth may not be as robust as previously thought (see note). However, it is also important to keep in mind that the first quarter of the year is often heavily affected by Lunar New Year – particularly true this year due to the change in timing from 2012 – while the current leadership transition may still be having some lingering impacts on the economy. Consequently, we are reluctant to change our growth forecast significantly – our anticipated recovery was always more subdued than most other forecasters – but we have made some marginal changes to our expectations for monetary policy over the next 12 months.
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