It’s the day when Asian markets take centre stage, with the release of GDP and other critical data from China.
Data from the world’s second-largest economy has been mixed in recent weeks, and markets are trying to figure out just how quickly the growth in China really is slowing.
Following a sharp slowdown during the financial crisis of 2008-09 and subsequent stimulus splurge that saw growth accelerate sharply in the years following, the economy has been slowing of late on the back of a government drive to address overcapacity in certain sectors.
That trend is expected to continue today with the economy tipped to have grown at an annual rate of 7.0% in the March quarter, below the 7.3% level seen previously. While the increased size of the economy makes maintaining high growth levels harder to achieve, if that is the number it’ll be the slowest expansion seen since the global financial crisis.
Just last night, Premier Li Keqiang was reported as saying on state radio that pressure on China’s economy was increasing, and that the country must prepare to face bigger economic difficulties, according to Reuters.
Aside from the GDP figure that will steal the headlines, there’ll also be data for industrial production, retail sales and urban fixed asset investment for March. Industrial production and retail sales are expected to have grown 6.9% and 10.9% from a year earlier, some 0.1% and 0.2% higher than what was reported previously, while industrial production, having already fallen to a multi-decade low in February, is tipped to slow further to 13.8%. This chart shows how those figures have all been falling in recent years too:
Chinese stocks have been on a monumental tear of late. Eye-popping gains have been seen, in some cases in excess of 100 percent, with one factor being the belief that weaker economic data will only encourage policymakers – China’s government – to add more stimulus.
While the old saying that “weak data is good, strong data bad” has been apparent in more-established markets since 2009 – because poor data increases the likelihood of stimulus – it appears that Chinese investors are now adopting a similar mindset.
While it’s not the sole reason behind the stock market rally – there are other factors at play including the desire of the government to boost household consumption through increased wealth – it will be interesting to see how markets react to the number, particularly in China and those nations that rely heavily upon the Chinese economy for economic growth themselves. Certainly heading into today’s data it’s clear that markets, by and large, are positioned for further weakness.
Will the mindset that “bad is good, good is bad” be maintained or, as was largely the case prior to the financial crisis, will it revert back to “good is good, bad is bad”? Based on recent indications the former looks far more likely than the latter.
We’ll know at midday, Sydney time.
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