China, Japan: Further Signs Of Weakening Growth


The two regional economic giants are facing major headwinds, with the recent purchasing manufacturers' indices (PMI) for both countries in contractionary territory according to the latest figures. China continued to post below 50 for the fourth consecutive month, while the introduction of the sales tax in Japan saw the index plunge into negative territory.

These economies, which represent almost 20% of global GDP, are set to see economic growth slow further over the coming months as major distortions, caused primarily by excessive monetary stimulus measures, undermine the ability of businesses to turn a profit.

The continued reduction in credit growth in China is weighing on confidence in the real estate market, with recent data showing a collapse in transactions volumes in April, and heavy discounting by developers. Given the importance of the real estate sector in supporting China's economy, it is difficult to see how growth will pick up in the face of declining property prices. Credit is becoming increasingly difficult to come by for small and medium-sized enterprises, even while headline credit growth remains in excess of 20% y-o-y, and a further slowdown in overall credit growth, which we believe is inevitable, will further undermine economic activity. We remain confident in our 7.1% real GDP growth forecast for 2014, relative to consensus expectations of 7.3%.

Falling Back To Earth With A Bang
China, Japan - Purchasing Managers' Index

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This article is tagged to:
Sector: Country Risk
Geography: Asia, China, Japan