It’s hard to imagine that everyone was worried about an emerging markets crisis a few months ago when China has been pumping out impressive economic figures recently. Is the world’s second largest economy starting to bounce back?
Earlier today, HSBC reported that its flash manufacturing PMI for June returned to indicating industry expansion, as the figure climbed from 49.4 to 50.8 – its seven-month high. This also marks the first time the index landed back above 50.0 since December last year!
Signs of a pickup in China have been popping up earlier this month, as both trade balance and CPI came in better than expected. The May trade balance showed a surplus of $35.9 billion, stronger than the estimated $22.6 billion figure and nearly twice as much as the previous month’s $18.5 billion surplus. Meanwhile, inflation climbed to 2.5% year-over-year in May, a strong gain from the previous month’s 1.8% annual CPI. Industrial production and retail sales have come in line with expectations, posting an 8.8% increase and a 12.5% gain respectively.
Before y’all chalk this up as a solid recovery though, take note that a few underlying figures still reflect weak spots. For one, the stronger than expected trade surplus reveals that imports imports slumped by 1.6% in the same month even as analysts were expecting to see a 6% gain. This shows that domestic demand remains very weak in China, which doesn’t spell very good prospects for raw material exporters like Australia and New Zealand.
Furthermore, the latest jump in CPI has been mostly attributed to government’s efforts to reverse price declines in the pork industry. Other inflation indicators such as the PPI marked a 1.4% decline in input prices in May and hinted at weaker inflationary pressures down the line.
Although it seems clear that the Chinese government’s efforts to spur economic activity have been starting to take effect, it remains to be seen whether or not these would translate to sustained growth in China and in the global economy. For now, the Chinese government is ramping up its spending on infrastructure projects while the central bank has cut reserve ratio requirements in order to stimulate lending.
“I can promise everyone honestly and solemnly, there won’t be a hard landing,” Chinese Premier Li Keqiang assured in a speech last week. At this point, China is employing “smart and targeted regulation” in order to meet its 7.5% GDP growth target. In other words, while a rebound can be achieved in the domestic economy for the next few months, it doesn’t guarantee that global economic performance will pick up as well.
How do you think the recent pickup in China will affect the forex market? Don’t be shy to share your insights in our comment box!