Posted by: mulrickillion | February 22, 2012

Slower But Still Steady Growth in 2012

Hong Kong Trader, Feb 7, 2012 —

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Hang Seng Bank

Slower But Still Steady Growth in 2012

  • Mainland China’s economic growth slowed to 8.9% in the last quarter of 2011 from 9.1% in the third quarter due mainly to persistent monetary tightening, a cooling property market and weak external demand. For 2011 as a whole, real GDP grew by 9.2%, less than the 10.4% in 2010.
  • Consumer and property price inflation eased in the final quarter, reflecting lower food prices, and administrative efforts to limit credit growth.
  • Looking ahead, with the adverse global conditions, weakness in the domestic housing market and the large repayment pressure of local government debt creating serious challenges for the Mainland economy, overall growth could slow further to 8.3% in 2012.
  • With growth slowing, there will be more pressure on the Central authorities to ease policies. However, inflation pressure remains and home prices are still at relatively high levels, policymakers will have to tread carefully. The US Federal Reserve’s decision to keep its near zero interest rate policy for longer and growing probability of further monetary easing in the US could also provide more breathing space for export-dependent economies like mainland China if it helps sustain US growth.

Economic growth slowed further

Mainland China’s economy continued to moderate in the last quarter of 2011. It recorded a growth of 8.9% , slower than an average of 9.4% in the first three quarters. For 2011, real GDP rose 9.2%, down from the 10.4% growth recorded in 2010.

The main reasons for the growth slowdown were weak external demand and deceleration in investment growth, while consumer spending held up pretty well on the back of steady income increases. As Exhibit 3 shows, household and government consumption contributed 4.7 percentage points to the 9.2% growth in 2011; and investment spending, from both the public and private sector, accounted for 5.0 percentage points. In contrast, net exports were the main drag, subtracting 0.5 percentage point from growth.

Inflation and home prices eased in the last quarter

More encouraging has been the easing trends in consumer and property price inflation. After peaking at 6.5% in July, consumer price inflation fell to 4.1% in December due to slower growth in both food and non-food prices. In the last quarter of 2011, consumer prices rose only 4.6%, markedly slower than the 6.3% increase in the third quarter. For 2011 as a whole, consumer prices climbed 5.4%, up from 3.3% in 2010. During the year, food prices jumped 11.8% while non-food prices inched up 2.7%.

Home prices in 70 major cities also began to soften in the last quarter on government policies to cool the housing market. Of the 70 major cities being monitored by the Statistical Bureau, the number of cities showing month-on-month price decline rose further to 52 in December from 16 in September. In addition, nine cities showed year-on-year decline in prices in December, compared with only one in September.

Main challenges for 2012

Looking into 2012, mainland China’s economy is expected to grow more moderately, at a pace of 8.3%, from 9.2% in 2011, but no hard landing scenario is envisaged. The deterioration in the external environment, the weakness in the domestic housing market and the large repayment pressure of local government debt will be the main challenges for the Mainland economy.

Among the different sectors, exports will be particularly hard hit. Mainland’s export growth is likely to be adversely affected by lingering sovereign debt problem in Europe and the fragility of the US economic recovery. In its latest forecast released in January, the International Monetary Fund (IMF) revised its 2012 real GDP growth for the eurozone to minus 0.5%, down sharply from the 1.1% projection it made four months earlier. The IMF also expected the US economy to grow by 1.8% in 2012 after an increase of 1.7% in 2011.

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