International | Jun 22 2009
By Chris Shaw
As the full impact of the recent fiscal stimulus package continues to flow through into the Chinese economy, it is causing economists across the globe to adjust their economic growth forecasts. Standard Chartered is the latest to revise its numbers via an increase to its 2009 China GDP estimate.
The group has lifted its growth forecast for this year to 7.4% year-on-year from 6.8% previously. The increase reflects the large number of infrastructure projects coming on line (earlier than previously anticipated) plus a sustained improvement in the residential housing market. The latter suggests previous affordability concerns have been dealt with via price cuts and additional supply.
Together the group suggests these give a clear indication overall that Chinese economic growth is picking up pace. This supports an increase to its forecast for this year, but there are no changes to its 2010 growth forecast of 8.0% given the view external demand won’t improve by any great extent until 2011.
This stands at odds to the Danske Bank view the economy is returning to stronger growth faster than most anticipate, the bank suggesting last week Chinese GDP could be back to 10% by the end of the year (see Chinese GDP Growth At 10% By Year’s End?, FNArena, 16/06/09).
According to Standard Chartered, the reason it doesn’t need to lift its 2010 growth forecast for China is even if the US economy returns to positive growth next year -Standard Chartered is forecasting US GDP of 2.0% in 2010- this is still unlikely to translate into strong demand for Chinese exports given much of the US’ growth will be related to investment.
As well, barring another stimulus package similar to this year’s one, the group doesn’t expect a similar number of new projects in China in 2010 as are being introduced this year. This will weigh somewhat on investment growth. As well, while there may be a pick-up in manufacturing activity, there remain over-capacity issues in a number of industries and this should also hold back on Chinese growth overall.
Along with adjusting its growth forecasts Standard Chartered has amended its inflation estimates, now forecasting a CPI increase of 3.4% year-on-year in 2010, up from 1.5% previously and higher than the 0.1% it expects this year. Such an increase in inflation is reasonable for an economy growing at 7-8% in the group’s view, but increases the likelihood of no further changes to official interest rates over the course of this year or next. This marks a change from its previous forecast of three additional interest rate cuts this year.