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23 May 2014
Upside risk to China's GDP forecast - Nomura
FXStreet (Bali) - Following the strong HSBC flash PMI in China, Zhiwei Zhang, Economist at Nomura, thinks that such surprise poses upside risks to Nomura's GDP forecast of 7.1% for Q2.
Key Quotes
"The HSBC flash PMI rebounded strongly to a higher-than-expected 49.7 in May, a 1.6 percentage point (pp) increase from the final April reading of 48.1 (Consensus: 48.3; Nomura: 48.0). The strong improvement was led by the new export orders index, which jumped significantly by 3.8pp to 52.7 in May from 48.9 in April, while the new orders index also rose, but by a smaller 2.8pp to 50.2 from 47.4, suggesting the recovery was driven more by the export side than by domestic demand."
"In addition to the recovery in external demand, the improvement in economic momentum may also be helped by policy easing measures, such as the People‟s Bank of China‟s targeted (at small rural banks) reserve requirement ratio cut and the use of its re-lending facility to China Development Bank and rural banks. Given property market weakness and the significant uncertainty facing the economy, we continue to expect the government to loosen monetary policy in Q2."
"This strong rebound in the HSBC flash PMI suggests there may be upside risks to our GDP forecast of 7.1% for Q2, but we will wait for the official PMI (on 1 June) before considering any change to our forecasts. We continue to expect growth to rebound slightly in H2, to 7.4% y-o-y in Q3 and 7.5% in Q4. We also maintain our view that growth will slow again in 2015 to 6.8% as easing measures are likely to push inflation higher next year, constraining the scope for further easing."
Key Quotes
"The HSBC flash PMI rebounded strongly to a higher-than-expected 49.7 in May, a 1.6 percentage point (pp) increase from the final April reading of 48.1 (Consensus: 48.3; Nomura: 48.0). The strong improvement was led by the new export orders index, which jumped significantly by 3.8pp to 52.7 in May from 48.9 in April, while the new orders index also rose, but by a smaller 2.8pp to 50.2 from 47.4, suggesting the recovery was driven more by the export side than by domestic demand."
"In addition to the recovery in external demand, the improvement in economic momentum may also be helped by policy easing measures, such as the People‟s Bank of China‟s targeted (at small rural banks) reserve requirement ratio cut and the use of its re-lending facility to China Development Bank and rural banks. Given property market weakness and the significant uncertainty facing the economy, we continue to expect the government to loosen monetary policy in Q2."
"This strong rebound in the HSBC flash PMI suggests there may be upside risks to our GDP forecast of 7.1% for Q2, but we will wait for the official PMI (on 1 June) before considering any change to our forecasts. We continue to expect growth to rebound slightly in H2, to 7.4% y-o-y in Q3 and 7.5% in Q4. We also maintain our view that growth will slow again in 2015 to 6.8% as easing measures are likely to push inflation higher next year, constraining the scope for further easing."