China: More Signs of Stabilization

Posted October 18, 2012 by rvillareal

China’s recent data batch contains the clearest signs to date that economic activity may have stabilized, although at a pace of expansion substantially below the average of the past couple of decades.

This soft landing is still, however, tentative in the sense that: (a) the process depends on government/central bank action and there is limited room for policy errors and for policy delays; (b) China is exposed to a potential further worsening of conditions in Europe (and a seemingly less likely similar development in the United States). But absent a significant deepening of Europe’s financial and economic woes, and/or significant policy errors and delays on the part of the Chinese leadership, it is now considerably less likely that China’s real GDP could enter a period of sub-7% growth in the quarters ahead.

If such potential adverse shocks do not materialize, high-frequency indicators suggest that real GDP might actually accelerate above 7.5% year-on-year during the final three months of 2012, and continue on an average improvement trend throughout 2013.

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