The recent deterioration of sentiment around China has been surprising even to us, as economists rushed to cut their GDP forecasts one after another. That is before the QEnfinity announcement, Germany Constitutional Court ruling, and possibly ECB’s OMT, so the sentiment is certainly as bad now as it was 2 weeks ago.
There are now see some reasons to expect a pick-up, or at the very least a stabilisation of economic activities in the next few months. The OECD indicator recently pointed to a slowdown in the pace of slowdown:
And others believe that the government’s stimulus has suddenly got real (we are sceptical as to how “real” the stimulus is).
But nobody we are not aware of is more excited than Nomura, as they believe that growth will rebound strongly from 7-ish% now to 8.8% yoy in Q4. The reason is that they believe the stimulus has suddenly got real. In other words, investment (the usual suspect) will pick up sharply in the months ahead:
We believe economic growth in China will rebound earlier, and stronger, than the market currently expects. The consensus forecast for 2012 GDP has fallen to 7.7% from 8.1% three months ago, and on a quarterly basis the consensus expects growth to slow from 7.6% y-o-y in Q2 to 7.5% in Q3, before recovering slightly to 7.7% in Q4. We on the other hand expect growth to rebound visibly in Q4 2012 to 8.8%, driven by stronger infrastructure investment and a rebound in housing investment, which combined account for half of total investment.
We believe CPI inflation bottomed in July and will rise to 3.1% in Q4 2012. We expect CPI to climb further to 4.2% in 2013, exceeding the consensus forecast of 3.4%. We believe the economic recovery will open up a positive output gap. The surge in global food prices is also likely to push up pork and edible oil prices in China.
