Friday, April 15, 2011

Top 5 Economics Graphs of the Week - 16 Apr 2011

This week the focus goes entirely to China, with an overview of some of the key economic statistics released over the past week. We look at the GDP results, then summarize the inflation situation, followed by a look at retail sales growth and industrial production, finishing up with a snapshot of new loans.

1. GDP
China reported 1Q 2011 GDP growth of 9.7%, basically flat on the previous quarter's 9.8% (11.9% in 1Q 2010), and above consensus expectations of about 9.5%. China's economy is still being kept strong by surging investment, with fixed asset investment rising 25% in March to CNY 3.95 trillion, boosted by construction. Trade volumes are also running relatively strong. But GDP is only one part of the Chinese economic picture...

2. CPI
China reported inflation of 5.4% year on year in March, up from 4.9% in February (March 2010 2.4%), and above consensus 5.2%. Meanwhile the People's Bank of China Price Expectations Index dropped off to 72.8 from 82.7, further signaling a peak in inflation. With the People's Bank of China raising its main policy rate to 6.31% and average required reserve ratio to 20%, it is increasingly likely that inflation will begin to moderate, particularly as the effect of food supply shocks begin to wane. However with the Chinese economy still going strong and loan growth and money supply growth still at relatively high levels (not to mention loose fiscal policy) the all-clear cannot yet be sounded on inflation in China.

3. Retail Sales
China saw retail sales fall -1% from February where it fell -10% (-8% in March 2010). While on a year on year basis retail sales rose 20% (15% in March 2010) to 1.36 trillion yuan. Retail sales results were largely distorted by the holiday period, but the firm upward trend remains. What's more, the annual growth rate is much higher at present than during 2009. On a related note Per Capita Cash Income of Rural Households rose 14.3% year on year to 2,187 yuan, while Per Capita Disposable Income of Urban Households increased 7.1% to 5,963 yuan.

4. Industrial Production
China reported industrial production expanding 14.8% in March compared to last year, off slightly from 14.9% in February (18.1% in March 2010). Meanwhile the PMI indexes both rose marginally, with the official CFLP PMI rising to 53.4 from 52.2 and the HSBC/Markit PMI rising to 51.8 from 51.7 (and the non-manufacturing jumping to 60.2 from 44.1). The Chinese industrial engine is still running strong, particularly with the lifting of the energy limits of late last year. Demand is still running strong from infrastructure and construction projects, consumer spending, and in particular, export demand.

5. New Loans
Chinese banks lent a further CNY 680 billion during March, up from 535 billion in February (577 billion in March 2010), bringing the YTD total to 2.25 trillion. On a related note money supply continued to expand, with M2 up 16.6%, M1 up 15.0%, and M0 up 14.8% year on year. So the monetary part of the equation is still running relatively accommodative to economic growth. This despite moves to tighten monetary policy via several increases in the interest rate and required reserves to pull down inflation. The main lever the People's Bank of China has left to pull down inflation is letting its currency appreciate (which would also create somewhat of a wealth effect for Chinese consumers - which would be beneficial for outward investment flows and purchases).


So, one quarter into the new year and the key themes for China remain growth and inflation. The Q1 result showed the economy still surging along thanks to large scale construction projects, strong export volumes, and relatively robust consumer spending driven by rising incomes. But the key risk remains inflation. Inflation is a key risk for social stability, the sustainability of economic growth, and it is perhaps the number one catalyst for investment markets. So, as noted previously, it will pay to carefully and closely watch the course of growth and inflation in China this year.

1. National Bureau of Statistics
2. National Bureau of Statistics & People's Bank of China
3. National Bureau of Statistics
4. CFLP & Markit/HSBC & National Bureau of Statistics
5. People's Bank of China

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