IMF: EUROZONE CRISIS COULD CUT CHINESE GROWTH IN HALF
The IMF downgraded Chinese growth estimates to 8.25% on fears over the Eurozone crisis. They are warning that growth could be cut in half in a worst case scenario (via Reuters):
“China’s annual economic growth could be cut nearly in half this year if Europe’s debt crisis tips the world economy into a recession, putting pressure on Beijing to unveil “significant” fiscal stimulus, the International Monetary Fund said.
The Fund outlined its central scenario for China’s 2012 growth outlook in its global outlook in January, cutting its forecast for 2012 growth from 9 percent to 8.2 percent.
The China Economic Outlook published on Monday showed that under the IMF’s “downside” forecast for the global economy, China’s growth rate may be cut by around 4 percentage points from the fund’s current forecast of 8.2 percent in 2012.”
China Scope Financial says the IMF is too pessimistic and growth will be a bit stronger in 2012 at 8.6% (via China Scope Financial):
- In a report released on February 6, the International Monetary Fund (IMF) lowered China’s economic growth expectations in 2012 to 8.25%. Before this, IMF expected a 9.2% growth.
- ChinaScope Financial expects China’s GDP growth in 2012 to be 8.6%.
- Related Data: Gross Domestic Product
ChinaScope Financial forecasts growth in 2012 at 8.6 %, 0.35 percentage point higher than the IMF forecast.
Source: China Scope Financial
CR,, there is a tug of war between the bull and bears on the prospects of US, China, Europe, rest of world growth; more specifically, the effect of the European debt crisis, the balance sheet recession, and the effect of deleveraging/ZIRP on growth.
The bull case mainly argues the European debt crisis is already priced in and its effects will be contained (remember “subprime will be contained?) and that the US economic growth snowball is already rolling (I.e., yesterday’s Krugman). The bears say the Eropean debt crisis is a bigger problem and concern that subprime, and that it will have a similar effect on the region that created it and rest of the world as the spread of the US originated subprime crisis in 2008, that the US is in a “balance sheet recesssion” very fragile recovery that will tipped into recession due to what is going on in the rest of the world.
As events were developing in the subprime crisis, it was clear to me (or did I just pick the “right” side by luck?:-) his it was going to end. I didn’t hesitate a bit despite the gyrations the market took to get us to the end result. Now, just because there are more bears forecasting the “bad” outcome, it has become fancy among bulls to play this fact as a contrarian argument (I.e., there so many people forecasting poor outcomes from low GDP to poor equity market performance that the oposite will happen). Net result: I have lost the confidence in my views vis a vis 2008.
Even though no one knows exactly how the current situation will finally resolve, I see the biggest opportunity for you to add value to your readership is in helping to reduce the uncertainty in the current bear-bull forecasting dichotomy.
Eurozone only? How about an other country peaking credit and paper shenanigans. There is a lot about endogenous problems in the slow down of growth and rising inflation in China.
China has created its own ‘shadow banking system’ problem and the illusion of wealth, but there has been lots of capital wasted there and now “it’s time to collect”. How this will affect financial markets I don’t know (as it looks like there is an infinite capacity to engineer soft landings in the financial front), but the economy will have to face serious structural challenges in the growth & capital investment model, debt expansion etc.
And again in the background we have the ever increasing problem of increasing headline inflation which is signalling real trouble further down the road which are not being solved or even being worked at yet.
My guess is that Chinese officials will be paying close attention to Chinese inflation numbers. Their target is 4%, i’m betting that if inflation starts to come down to 3%, that they’ll begin implementing further fiscal stimulus. The real estate sector will be going through a large amount of pain, thanks to all of the regional real estate bubbles (“There will be blood” in Richard Koo’s words); the Chinese authorities will do what it possibly can to maintain strong 8.5%+ growth to prop up what may be a balance-sheet recession in China in some areas among some sectors. Chinese legitimacy is on the line, and they’ve pretty well delivered for the last few decades..