Out With The Old, In With The New
BMI View: While the outlook for China's traditional economic growth drivers such as heavy industry and real estate construction remains cloudy, the outlook facing the more consumer-focussed industries is relatively strong over the medium term. Overall, though, as the traditional sectors remain the dominant drivers of the economy, we remain below consensus in our real GDP growth outlook, and caution that the inevitable bursting of the ongoing credit bubble could also serve to undermine the profitability of the consumer-focussed industries. We are revising up our forecast for 2013 to 7.6% from 7.5% previously, while maintaining our downbeat forecast for 2014 of 6.7%.
The bullish and the bearish case regarding China's economic growth outlook both have merit. As regular readers will know, we have been in the bearish camp over recent years, arguing that the excessive credit-fuelled nature of the economic expansion would result in a painful hard landing. This remains our central case. Despite the recent pick-up, economic activity remains meagre on the whole, at a time when credit growth is still rising almost 20% annually from an already-high base. It is difficult to dismiss the importance that the largest recorded credit boom will have on economic growth once it finally ends, as all credit booms do. That said, in an emerging economy in excess of US$8.0trn, there are clearly areas of strong growth and opportunity.
Old Versus New China
|Stabilisation Not A New Upswing|
|China - Average Of Official And HSBC PMI Indices|