The figures show that China’s GDP growth fell to 6.8% in the fourth quarter, down from 9% in the third quarter and is half of 13% growth rate in 2007. This implies that growth was virtually zero on a seasonally adjusted basis in the fourth quarter.
Industrial production has slowed even more sharply, growing by only 5.7% in the 12 months to December, compared with an 18% growth rate in last quarter of 2007. Chinese exports are likely to drop further in coming months as world demand shrinks. 2009 is expected to see first y-o-y decline in exports in past 25 years.
While forecasting GDP growth for any country economists take help from various criteria. One of the criteria is electricity output which is leads GDP growth as more electricity consumption eventually leads to higher GDP and decline in electricity output may mean that GDP is falling, In the graph, percentage growth in GDP and electricity output is shown. It can be easily seen that electricity output leads the GDP but magnifies rise of fall in GDP growth. By taking help of regression, economists have estimated that a negative 6 % growth in electricity output could convert to GDP growth in the range of 0-1 %.
Though this is not the only criteria, other criteria sush as export growth and its weight in the GDP, Housing growth indicator (which suffered a collapse due to slump in housing construction, caused by the government’s efforts to deflate a potential bubble) point even worse situation for China.
Measures taken by China
On January 21st it announced extra spending of 850 billion Yuan over three years to improve health care and Infrastructure.
From February, rural residents will get a 13% rebate on purchases of goods such as refrigerators, TVs and washing machines.
Interest rates have also been cut five times between September and January
Controls on bank lending have been scrapped. To help the property sector, minimum down-payments have been reduced from 30-40% of a home’s value to 20%, the transaction tax has been waived for properties held for at least two years, and more public housing is to be built.
The crash of the Indian Stock Market since January 2008 has been widely attributed to FIIs pulling their money out to meet liabilities and redemptions. According to this article, however, FIIs have only pulled out $12.7bn and still have another $53.7bn, or almost Rs. 270,000 Cr. left in the market.
A lot of market experts are talking about the market being near the bottom (”Valuations just cannot get any cheaper! The Indian growth story is sound, even at 7%!”) Let’s be clear on this: these falling prices are not about fundamentals - its simply about lack of liquidity. FIIs are not exiting the market because they want to, but because they are being forced to - nobody wants to book such massive losses, and nobody would argue against the fact that as an emerging market India is looking pretty cheap.
Until a few weeks ago a target price of $100 for crude would have been laughable. The market seemed sure prices would steadily climb towards $200.
So what has happened since then, other than the 25% fall in price?
For a start, many people now predict a fall in global demand, as economies adjust consumption in light of growth forecasts and the high price. This reduction in planned consumption has released the pressure which kept oil at $140 per barrel.
However, it was well known several months ago that further rises in the price of oil would damage the economy; in other words that $200 was not sustainable.
Why then were we so happy to believe prices would continue to rise, and why are we not now revising growth forecasts back up, in light of the recent fall in oil price?
That growth forecasts are not being seriously revised is due to tight global credit markets and perceived instability in the financial system restricting investment, while commodity price inflation is still hurting consumers’ real spending power.
The question of why we were willing to believe oil would continue to rise is more challenging: I believe the markets underestimated the speed with which the US credit problems would spread to the real economy outside the US. This led to an early reduction Read the rest of this entry »
The figures show that China’s GDP growth fell to 6.8% in the fourth quarter, down from 9% in the third quarter and is half of 13% growth rate in 2007. This implies that growth was virtually zero on a seasonally adjusted basis in the fourth quarter.
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