Probably nobody outside of China is more concerned about the strength of China’s economy than Australia, and the latest economic data shows why.
China’s imports from Australia have soared to a new high and the trade deficit is larger than ever as well:
Tthe latest economic data seems to have hit a sweet spot — China’s economy is slowing, but not by too much according to Annette Beacher and Roland Randall at TD Securities:
The biggest surprise was weaker than expected industrial output (13.3%/yr vs 14% fcst [forecast according to Fact Set]). But the absence of evidence of any across-the-board weakness in activity data in general was a relief for Asian markets and pushed risk assets higher after the report.
One central bank that watches China data even more closely than most is the RBA. The RBA is almost unique in the developed world in still seriously considering tighter monetary policy. Indeed, at the moment the RBA is watching even more closely than usual. The Board assesses the argument for pausing vs hiking interest rates as “finely balanced”. China data showing that Australia’s most important customer is recovering and not suffering the consequences of weak demand from its own customers reduces downside risks to hiking Australian interest rates sooner rather than later. Today’s data is certainly a vote for the RBA to hike in November.
A successful Chinese soft landing is likely a must for Australia’s continued economic success, given how huge Chinese exports have become. Just look at how China’s economy dictates Australia’s interest rate decisions. Luckily China seems to be achieving the soft landing Aussies need, so far at least.
(Via TD Securities, China: on track, Annette Beacher & Roland Randall, 21 October 2010)