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China: Soft-Landing or Recession-bound? (IV)
- Data just-released on fixed capital formation, retail sales, inflation, industrial production, and lending clearly validate the fundamental and policy trends we have repeatedly highlighted in recent months: China’s economy is still decelerating, seemingly approaching, in an inch-by-inch fashion, a relatively healthy bottom of the cycle, close perhaps to the government’s 7.5% target for 2012.
- In other words, the Chinese economy could be approaching a soft-landing, but it is not there yet, and there is a growing risk that the mutually reinforcing decelerations of exports, fixed capital formation and consumption spending might lead to an entrenched downward dynamic motion of the economy, pushing real GDP down towards a recession-like range (5%-to-6% year-on-year).
- In view of such risks, DE expects further easing of policy to occur in months to come, possibly including not only faster credit growth but some interest rate reductions as well.