After China’s growth slowed to 7.6 per cent last quarter, should we remain optimistic?

Duncan Innes-Ker

China’s economy slowed in the last six months but, in contrast to the downturn of 2008, the local jobs market has held up well. It’s hard to be that worried about a country in which the average city-dweller saw their income rise 13.3 per cent between the first half of this year and the same period in 2011. A tight labour market will continue to push up wages, supporting consumption going forward. Meanwhile, things are beginning to look up in the property market, the main economic black spot. According to one closely-watched series, home prices rose in June, for the first time in 10 months. Government efforts to boost infrastructure investment will also begin to have an impact in the second half of 2012. Growth is easing from the boom rates seen in the recent past, but it should remain strong for many years to come.

Duncan Innes-Ker is China analyst at the Economist Intelligence Unit.

Michael Derks

These latest GDP figures out from China simply affirm the distinct loss of momentum experienced by the Chinese economy in the first half of this year. Major sectors within the economy, particularly construction and real estate, heavy industry and automobile production, have all slowed much more rapidly than expected. The vast majority of Chinese firms are also reporting shrinking profit margins and slowing profits growth. Looking ahead, notwithstanding recent policy initiatives, the pace of recovery will remain subdued. China is very reliant on global trade to sustain its domestic growth, and the prognosis for the former looks subdued at best. We can expect much more from Chinese policy-makers over coming months in terms of monetary and fiscal measures, as well as a weaker exchange rate.

Michael Derks is chief strategist at FxPro