Craig Eisele on …..

July 7, 2012

China Shows Signs of Economic Slowdown Greater Than Originally Thought

Filed under: Uncategorized — Mr. Craig @ 10:51 am

China’s surprise Thursday interest-rate cut, the second in less than a month, has market commentators chattering about what sort of bad surprise next week’s data have in store.

The assumption is that the People’s Bank of China knows the numbers will be bad and wants to preempt negative reaction with some monetary stimulus.

After all, China’s June 7 rate cut came just days before data showed a relatively weak economy for May, with industrial output rising less than forecast among other disappointments. Read more on China’s May data release.

If this rate cut proves a replay of last month, it begs the question: How bad will things be?

The Chinese government is due to release inflation numbers Monday, followed by trade data Tuesday. But the main event comes Friday, when markets will get a look at second-quarter economic growth, along with June retail sales, fixed-asset investment and industrial output.

The likely suspect in terms of data that would justify a second rate cut is economic growth.

A Reuters survey is tipping gross domestic product to have risen 7.6% from a year earlier, while other forecasts call for 7.5%.

But a Chinese government economist told the Shanghai Securities Journal on Friday that GDP growth could come in below 7.5%, particularly if industrial-production growth matches its May level of 9.6%. Read more on economist’s China GDP forecast.

A GDP print below 7.5% would likely set off alarm bells, and given the drops in Hong Kong and Shanghai stock indexes as of late Friday afternoon, the rate cut may offer little in terms of protecting the markets from ugly data.

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