China Earthquake Tragedy Should Not Threaten Economy

Merrill’s early read is that the devastating earthquake in Sichuan province will not have a major impact on China’s economy. WSJ:

[Merrill] believes the earthquake will have a “much smaller impact” on China’s macroeconomy than the massive snowstorm that hit earlier this year. Beginning in early January, a series of freak storms – the worst in 50 years — blanketed huge swaths of China in snow and ice, knocking out power, closing airports and disrupting rail lines and highways…

Sichuan province is not a manufacturing centre. The province makes up 3.9% of China’s GDP and manufacturing output in Sichuan is only about 2.5% of the national total.

Little or no major damage to the national transportation system. Unlike the snowstorm which directly paralysed some of the most important railways and highways in China, the earthquake only affected some local transport systems.

We expect the earthquake to further fuel inflationary expectations in some parts of China due to possible supply shortages …. Compared with the snowstorm, we believe the impact on inflation is much smaller.

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