As the Chinese National Statistics Office announced today, provisional estimates show the Chinese economy growing by 11.9% on a year earlier in the first quarter of 2010. Economic momentum thus accelerated further. To some extent at least, the sharp rise was attributable to the fact that in the corresponding quarter 2009 China had recorded the weakest growth for many a year. Investment rose by 25.6% on a year earlier, with investment in urban residential construction up by more than 35%.
China: Boom fuels concern of overheating – political action needed
Today’s figures fuel concern that the Chinese economy might be overheating and that bubbles might be forming in individual sectors such as real estate. Inflation, for instance, is a worry, even if the year-on-year increase of 2.4% in March was down slightly on the February figure (+2.7%). We expect the monetary reins to be tightened further in the coming months. Having so far only raised the minimum reserve rate for banks, the central bank is also likely to start nudging up its key interest rate soon. Together with further restrictions on lending, this is likely to curb the rise in new loans. Initial inroads on this front have already been evident in recent months. Nonetheless, in the first quarter of this year new lending already amounted to more than a third of the total envisaged by the government for the whole year.
In the coming months we also expect to see a relaxation in China’s exchange rate policy. From the second half of the year at the latest, the renminbi will in our view start moving up again gradually against the US dollar. By year end it will then be some 2-5% up on its value at the close of 2009. An appreciation would benefit the Chinese economy on two fronts: firstly, it would increase the purchasing power of the population, bolstering domestic demand; secondly, it would mitigate inflationary pressure.
All in all, the gradual withdrawal of the economic policy stimuli will cause economic momentum to ease in the course of the year. In light of the strong first quarter we have raised our forecast for the year as a whole from 9% to 10%.
Gregor Eder
tel.: 49 / 69 / 2 63 – 5 33 58
e-mail: [email protected]