Monday, August 2, 2010

China Economy Slowing; Germany Strenghtening

Starting in the early spring, Chinese officials started to increased reserve requirements to curb lending. They did this rather than raise rates in an effort to slow the economy to prevent inflation from taking hold. It appears their efforts worked:

The official PMI published by the China Federation of Logistics and Purchasing slid from 52.1 in June to 51.2 in July. A reading above 50 indicates growth. Economists said that, after correcting for seasonal factors, the survey showed a stabilisation rather than a sharp slowing in growth.

The economy has been restrained by attempts to curb real estate speculation, as skyrocketing house prices have triggered dissatisfaction in many cities.

After encouraging lending as part of a stimulus package, Beijing has reined in bank credit in recent months after bad loan ratios at state banks shot up. The Chinese central bank said on Sunday that it would stick to its credit target of Rmb7,500bn ($1,100bn) in new loans for this year and strictly implement the tight credit policies it adopted.

It's important to note a few points.

1.) The index is still above 50, indicating expansion.

2.) The Chinese economy was growing over 10%; the growth rate will not crash but slow, probably to the high single digits.

In addition:

The eurozone’s industrial recovery shows scant signs of slowing but is relying almost entirely on Germany to drive growth, according to a closely watched survey.

The July eurozone manufacturing purchasing managers’ index was on Monday revised slightly higher, confirming that the sector had entered the second half of the year on a strong note. The sharpest improvement was in Germany, however, with growth prospects remaining weak elsewhere and the French index dropping to its lowest level for ten months.


The year-on-year rise in German orders reflected the weakness of business in mid-2009. But Hannes Hesse, the VDMA’s director, said the data underscored the “dynamism” of the sector. Particularly encouraging, he said,was a 67 per cent increase in domestic orders, that pointed to a revival in internal demand.

Europe has issued some surprisingly strong statistics over the last few weeks, especially in light of the problems related to the banking sector.