Error message

Warning: include_once(): Unable to allocate memory for pool. in drupal_settings_initialize() (line 732 of /opt/drupal/includes/bootstrap.inc).

China, Japan: Further Signs Of Weakening Growth

The two regional economic giants are facing major headwinds, with the recent purchasing manufacturers' indices (PMI) for both countries in contractionary territory according to the latest figures. China continued to post below 50 for the fourth consecutive month, while the introduction of the sales tax in Japan saw the index plunge into negative territory.

These economies, which represent almost 20% of global GDP, are set to see economic growth slow further over the coming months as major distortions, caused primarily by excessive monetary stimulus measures, undermine the ability of businesses to turn a profit.

The continued reduction in credit growth in China is weighing on confidence in the real estate market, with recent data showing a collapse in transactions volumes in April, and heavy discounting by developers. Given the importance of the real estate sector in supporting China's economy, it is difficult to see how growth will pick up in the face of declining property prices. Credit is becoming increasingly difficult to come by for small and medium-sized enterprises, even while headline credit growth remains in excess of 20% y-o-y, and a further slowdown in overall credit growth, which we believe is inevitable, will further undermine economic activity. We remain confident in our 7.1% real GDP growth forecast for 2014, relative to consensus expectations of 7.3%.

Falling Back To Earth With A Bang
China, Japan - Purchasing Managers' Index

The two regional economic giants are facing major headwinds, with the recent purchasing manufacturers' indices (PMI) for both countries in contractionary territory according to the latest figures. China continued to post below 50 for the fourth consecutive month, while the introduction of the sales tax in Japan saw the index plunge into negative territory.

Falling Back To Earth With A Bang
China, Japan - Purchasing Managers' Index

These economies, which represent almost 20% of global GDP, are set to see economic growth slow further over the coming months as major distortions, caused primarily by excessive monetary stimulus measures, undermine the ability of businesses to turn a profit.

The continued reduction in credit growth in China is weighing on confidence in the real estate market, with recent data showing a collapse in transactions volumes in April, and heavy discounting by developers. Given the importance of the real estate sector in supporting China's economy, it is difficult to see how growth will pick up in the face of declining property prices. Credit is becoming increasingly difficult to come by for small and medium-sized enterprises, even while headline credit growth remains in excess of 20% y-o-y, and a further slowdown in overall credit growth, which we believe is inevitable, will further undermine economic activity. We remain confident in our 7.1% real GDP growth forecast for 2014, relative to consensus expectations of 7.3%.

In the case of Japan, a slightly different, but similarly extreme, monetary experiment was responsible for the mini-economic boom seen over the past 12 months, but we are seeing increasing signs that this is fading fast. Real wages are collapsing, and consumer confidence is naturally being negatively impacted. While consensus expectations are for the impact of the sales tax hike to prove fleeting, we believe that the recent decline in activity is a warning sign of what is to come as people fear the sustainability of the current fiscal trajectory. Our recently-revised real GDP growth forecast of 0.9% seems well placed relative to consensus expectations of 1.4%.

Read the full article

This article is tagged to:
Related sectors of this article: Economy, Economic Activity
Geography: Asia, China, Japan
×

Enter your details to read the full article

By submitting this form you are acknowledging that you have read and understood our Privacy Policy.