Photo: Bank of America Merrill Lynch
Bank of America Merrill Lynch’s China economist Ting Lu just published a big bullish 11-page report in which he cranked up his GDP estimates citing “across-the-board green shoots.”First, here’s a summary of his revisions:
- 4Q12 year-over-year GDP growth to 7.8% from 7.5%
- 2012 annual GDP growth to 7.7% from 7.6%
- 2013 annual GDP growth to 8.1% from 7.6%, with quarterly year-over-year growth at 8.3%, 8.3%, 8.0% and 8.0% from 1Q13 to 4Q13 respectively
- 2014 annual GDP growth of 7.7%.
Lu updated his outlook for two reasons: green shoots and better quality data.
Why we revise up growth forecasts? Green shoots
We have seen an increasing amount of evidences for green shoots. Prices of cement, iron ore, steel and transportation bounced recently. Inventory of coal, iron ore and perhaps some raw materials are declining. Consumers were exuberant during the Golden Week. Ports activities were up; Manufacturers’ earnings growth turned the corner in Sep. In addition, credit growth quickened significantly in Sep if we take into account corporate bonds and trust loans. Finally, we see a brighter future of the US economy with some recent encouraging data.
Why we revise up growth forecasts? Better data quality
The NBS revised down 4Q11 QoQ growth to 1.7% from 2.0% and 1Q12 QoQ growth to 1.6% from 1.8%. These big revisions (quite big if we annualize them) are understandable as the NBS only started releasing QoQ data in 2011, and it takes time for them to adjust their models. With these new QoQ estimates, we can better understand the falling yoy growth so far this year, but we also realise that we had underestimated the rebound of yoy growth in 4Q12 and 1H13.
“We expect global growth to remain sluggish in 2013, but tail risks especially those in euro zone have been reduced to a large extent,” he wrote. “Overall, our global economics team expects flat global growth at 3.1% in 2013 compared with 2012, while we believe the reduction of uncertainty could boost business confidence and lend support to China’s export growth.”
No signs of a hard landing here.