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Policy support helps to stabilize growth
By Wang Tao |
July 19, 2012, Thursday
|
Print Edition
Print Edition
CHINA'S real gross domestic product growth slowed to 7.6 percent year on year in the second quarter of 2012, but rebounded to 7 percent quarter on quarter from 6.3 percent in the first quarter.
The recovery in the second quarter was weaker than we had expected three months ago, because policy support has been more muted until recently.
Our forecast of the growth trajectory for the rest of the year has not changed, but the lower base in the second quarter leads us to revise down our 2012 GDP forecast for China from 8.2 percent to 8 percent. The estimate for the Consumer Price Index is also revised down to 2.8 percent for 2012.
In June, while the growth of manufacturing and property investment slowed as a result of weak exports and property sales, infrastructure investment accelerated due to the government's policy push.
Continued destocking
Continued destocking meant that the rebound in investment demand has not been fully reflected in industrial production, which grew by 9.5 percent year on year in June.
Banks increased lending by about 920 billion yuan (US$144.4 billion) in June, and additional credit came in the form of increased trust financing and corporate bond issuance.
Such increases in credit should help to support a rebound in fixed investment, while property investment and construction are expected to stabilize, along with a modest recovery in sales.
Going forward, we do not expect the Chinese government to come up with any major new stimulus but to continue with the current policy support.
The People's Bank of China is likely to cut banks' reserve requirement ratio again if foreign exchange flows are weak and cut interest rate one more time later in the third quarter.
We still do not expect the government to relax home purchase restrictions this year unless the global economy deteriorates significantly.
While real GDP growth is recovering, corporate earnings are affected by continued slowdown in (nominal) revenue growth and margin squeeze, and should improve in the fourth quarter of 2012.
The article was extracted from a UBS research report issued on June 16. The opinions expressed are her own.
The recovery in the second quarter was weaker than we had expected three months ago, because policy support has been more muted until recently.
Our forecast of the growth trajectory for the rest of the year has not changed, but the lower base in the second quarter leads us to revise down our 2012 GDP forecast for China from 8.2 percent to 8 percent. The estimate for the Consumer Price Index is also revised down to 2.8 percent for 2012.
In June, while the growth of manufacturing and property investment slowed as a result of weak exports and property sales, infrastructure investment accelerated due to the government's policy push.
Continued destocking
Continued destocking meant that the rebound in investment demand has not been fully reflected in industrial production, which grew by 9.5 percent year on year in June.
Banks increased lending by about 920 billion yuan (US$144.4 billion) in June, and additional credit came in the form of increased trust financing and corporate bond issuance.
Such increases in credit should help to support a rebound in fixed investment, while property investment and construction are expected to stabilize, along with a modest recovery in sales.
Going forward, we do not expect the Chinese government to come up with any major new stimulus but to continue with the current policy support.
The People's Bank of China is likely to cut banks' reserve requirement ratio again if foreign exchange flows are weak and cut interest rate one more time later in the third quarter.
We still do not expect the government to relax home purchase restrictions this year unless the global economy deteriorates significantly.
While real GDP growth is recovering, corporate earnings are affected by continued slowdown in (nominal) revenue growth and margin squeeze, and should improve in the fourth quarter of 2012.
The article was extracted from a UBS research report issued on June 16. The opinions expressed are her own.
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