China's 1st quarter GDP grew at a non-expected 7.4%, and it is expected to grow even more. Despite this, growth was slowed from 7.7% in Q4 2012 to 7.4% Q1 2014, the lowest for China since Q2 2012. This appears to be consistent with Premier Li Keqiang's policy goals for China in the future. His long-term goals for China include adjusting the economic growth model from an investment-driven economy to a consumption-driven one.
In the 1st quarter, consumption accounted for 76.7% of China's GDP growth, the 2nd most since the data series began in 2009. In addition, year-to-date retail sales increased from 11.8% (January-February) to 12% year-over-year. Investment growth decreased from 17.9% to 17.6%, which was consistent with China's goals. Industrial production also increased from 8.6% to 8.8%.
In terms of bad news, however, is that values of homes in the 1st quarter fell 7.7%. New property constructions fell 25.2%, the lowest quarterly amount since Q1 2009. The broadest measures of finance for the economy fell 9.1%, including a 66% decrease in trust loans.
With prices declining, deflation occurs, and deflation is worse for an economy than inflation, as we have discussed in class, due to lower revenues and profit margins, which lead to more turnover, less hiring, stagnant wages, and pay cuts, as well as lower consumer disposable income and lowered price expectations.
The article provides positives and negatives of these economic policy changes for China. What do you think about it?
http://www.forbes.com/sites/oliverbarron/2014/04/21/does-chinas-q1-gdp-figure-rule-out-a-hard-landing/
By Nominal GDP, China is the second largest economy just behind the US, however the US only has a 2.2 % GDP growth rate. Is this large disparity between our two GDP growth rates cause for any alarm?
ReplyDeleteIt is very interesting that the value of homes in the first quarter fell 7.7% and new property constructions fell 25.2%. There has been a growing housing bubble in the Chinese Markets, and many were concerned whether the burst of the bubble will cause major damage to the Chinese Economy. The large drops in the value of homes and new property construction seems to be the beginning of the bursting of the bubble.
ReplyDelete