China has been the centre of attention in recent months as most other non-Chinese economic indicators have been dwarfed by the government’s actions and markets’ reactions. It is the unknown quality of the Chinese economy that is worrying analysts, not the fact that the economy is in a transition phase which inevitably will drive down GDP growth and change import and export patterns.
The Federal Reserve Bank is still scouting for the right moment to increase interest rates. If it wasn’t for the most recent uncertainty about China, which is felt in the US too, it would probably have already occurred.
While the official GDP growth for the second quarter measured exactly 7%, which was the government’s official target, factors pointed out already in 2007 to be more accurate for China’s economic development by the incumbent Premier Li Keqiang tell a different story. The three factors he mentioned were the cargo volume on the province’s railways, electricity consumption and loans disbursed by banks. Using these factors, the economy seems to only be growing by up to 3%. The lack of trustworthy data means that the uncertainty is severe.
As the European recovery continues at a time-consuming pace, the unemployment level responds remarkably well and has now come down to 10.9% in the Euro area. This is the lowest level seen since February 2012 and a much-needed relief since the pinnacle at 12.1% in mid-2013.
It remains the southernmost parts of Europe where the unemployment is most severe. Europe is also impacted by the sanctions against Russia and to a smaller extent by the Russian sanctions against Europe. The EU is Russia’s largest trade and investment partner. The Russian GDP fell by 4.6% in the second quarter year-on-year, while the EU28 GDP growth rose by 0.4% in the second quarter from the previous quarter.
Our base case for China is that the authorities will still manage to pull off a soft landing. Regardless of where the real GDP growth is at, China is in a transition phase that brings around slower yet safer and more sustainable growth. According to the International Monetary Fund (IMF) this requires that the market is given a more decisive role in the economy. The call in the financial markets is for the Chinese authorities simply to communicate what they intend to do before they do it and explain what they aim at accomplishing by the moves.
Adapted from press release by Joseph Green
Read the article online at: https://www.worldcement.com/europe-cis/12102015/demand-eu-us-china-uncertainty-747/