In January the national purchasing managers’ index for the manufacturing sector slipped from 56.6 to 55.8 points. The employment component fell particularly sharply, sliding 1.6 points to 50.6 points, only marginally above the expansion threshold of 50 points. By contrast, purchasing managers were substantially more upbeat about the foreign orders picture than in December. The corresponding sub-index rose from 52.6 to 53.2 points.
China: Major challenges ahead
The latest fall in the purchasing managers’ index should of course not be overstated. But it does highlight the challenges China faces this year: with the government having successfully stimulated the economy last year with the help of very expansionary fiscal policy and extremely aggressive lending, it is now time to gradually withdraw from this economic strategy. On the monetary policy front the withdrawal has already started: only recently the central bank jacked up the minimum reserve rate by 50 basis points. Further measures such as a hike in the key interest rate will follow soon. In addition, lending in 2010 is likely to be appreciably more moderate. In the wake of last year’s record new lending, this is also urgently needed. Furthermore, we expect to see a slight relaxation in China’s exchange rate policy soon. In our estimate, the renminbi will start to climb gradually against the US dollar again from the second half of the year at the latest. By the end of the year the renminbi is likely to be worth some 2-5% more than at the end of 2009. An appreciation of the Chinese currency would be a positive development, not least from an inflation angle as it would alleviate domestic inflationary pressure. In December 2009 consumer prices stood 1.9% up on a year earlier, after a mere 0.6% in November.
All told we expect China to successfully negotiate the exit from expansionary economic policy. However, this will be at the expense of growth. For 2010 as a whole we see real economic growth of 8.7%, well below the growth rates seen prior to the global economic crisis.
Gregor Eder
tel.: 49 / 69 / 2 63 – 5 33 58
e-mail: [email protected]