Soft Economic Landing
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China's GDP Grows at Slowest Rate Since 2009
China's economy grew at its slowest pace in two-and-a-half years during the final quarter of 2011, as Beijing fought chronically high inflation and faced weakened demand for its exports. The growth of China's gross domestic product in the fourth quarter slowed to 8.9 percent, the slowest expansion since the second quarter of 2009. But the figure still exceeded many analysts' expectations, suggesting a soft landing for the world's second largest economy. Overall, China's economy grew 9.2 percent in 2011. That is down from the previous year's figure of 10.4 percent. While growth is slowing, many experts say that China's economy is showing surprising resiliency to the global economic downturn. National Statistics Bureau Chairman Ma Jiantang said the slowdown was in line with government plans to cool China's overheated economy. But he also warned that growth was likely to slow further. "All the circumstances, including the domestic and international environment, increase many uncertainties in China's economic operation in 2012," Ma said. Many analysts also predict that China's economy will continue to slow during the first six months of 2012. But some say the stronger than expected fourth quarter growth may give Chinese policy makers the ability to delay any further moves to ease monetary policy. Meanwhile, Ma said figures released Tuesday indicate China's urban population has surpassed the number of those living in rural areas for the first time. "The portion of urban population to rural population rose to 51.27 percent, which for the first time put the urban population over 50 percent. This was 1.32 percentage points higher than that of the previous year." Formerly an agrarian society, China has experienced rapid urbanization as farmers continue to leave their fields and factory jobs in search of higher salaries in the city. Official figures suggest that China's rural population fell by 14.6 million in 2011. China, which has the world's largest popopulation, is now faced with providing jobs, supplies and infrastructure and for its rapidly expanding number of city dwellers. Some information for this report was provided by AFP and Reuters.
Economists forecast cut in rates
The Bank of England is expected to cut UK interest rates by a quarter of a percentage point to 5.25% from 5.5%. However, analysts said that while they expect borrowing costs to fall, concerns about inflation would prohibit large cuts of the size seen in the US. The Bank of England's Monetary Policy Committee (MPC) will announce its rate decision at 1200 GMT after a two-day meeting. Many observers are predicting that rates will fall further this year. However, a lot will now depend on how the UK economy performs, analysts said. "Latest data and survey evidence indicate overall that while UK growth is currently clearly slowing appreciably, it is not collapsing," said Howard Archer, chief UK economist at Global Insight. "Consequently, the Bank of England seems unlikely to follow the US Federal Reserve in slashing interest rates. "Instead, the Bank of England is likely to cut interest rates gradually but steadily." Balancing act Analysts said that the Bank has to juggle the threat of slowing economic growth with the risk of faster price growth. The MPC voted 8-1 to keep interest rates on hold in January, and said the risk of inflation had "worsened markedly". Thursday's rate decision comes after the British Retail Consortium said shop price inflation picked up in January to 1.2%. Food prices showed the biggest increase, up 3.9% compared to the previous year. graph And while the most recent UK inflation data showed that national consumer price inflation remained at 2.1% for the third month in a row during December, energy prices have increased substantially since then. British Gas, Npower, EDF and Scottish Power have all announced double digit increases in fuel prices this year. Policy makers will also be keeping on eye on the pound. It has fallen 7% against the dollar since November and was down again on Wednesday. A strong currency helps keep inflation low by making imports relatively cheaper. 'Rapid steps' UK business is looking for a more aggressive attitude to interest rates. Economic adviser to the British Chambers of Commerce, David Kern said: "We would welcome a cut to 5% but we understand the MPC may be reluctant to give a misleading impression of panic. "We urge the MPC to move to a 5% rate in two rapid steps. The longer it waits, the bigger the danger that the situation could deteriorate." The Confederation of British Industry's chief economic adviser, Ian McCafferty, argued that despite short-term inflationary pressures, "there are clear signs that the economy is beginning to slow". "A modest cut now would help ensure a soft economic landing, without undermining the Bank's credibility on inflation." Mortgages Experts have warned that a cut might not necessarily lead to lower rates for homeowners on variable rate mortgages. "The 'credit crunch' is affecting the availability and pricing of loans in parts of the market, as well as on the total amount and cost of funding available to lenders overall," said a spokesman for the Council of Mortgage Lenders (CML). "In this complex environment, it is incorrect to assume that a base rate reduction will, or should, automatically result in a cut in standard variable rates or discounted rates." The CML estimates that a fifth of the 11.8 million outstanding mortgages in the UK are standard variable rate or variable rate loans.
Business: The Economy US economy's 'soft landing'
The industrialised countries' think-tank has predicted a soft landing for the US economy. After seven years of a buoyant economy, growth is only beginning to slow, according to the Organisation for Economic Co-operation and Development (OECD). However, the Paris-based experts do not predict a recession or anything coming close to it. In fact, many countries would be glad to emulate the "slow growth" forecast for the United States. The OECD believes that during 1999 the United States will increase its gross domestic product - the total output of its economy - by 3.5%, down from last year's figure of 3.9%. In the last quarter the US economy has done even better than that, growing at an annual rate of 4.5%. Germany, in comparison, is expect to see its gross domestic product expand by 1.5% this year, while the UK economy is expected to grow a measly 0.7%. Consumers drive the economy In its economic survey of the United States, the OECD experts say that private consumption and private investment have been the driving forces behind this period of extraordinary economic growth. The strong consumer demand in the US helped to "offset the slackening in exports provoked both by the Asian crisis and an appreciation of the dollar". [ image: Surging stock markets have driven up consumer demand, boosting the whole economy] Surging stock markets have driven up consumer demand, boosting the whole economy But the OECD expects that US consumers will soon spend less, hitting company profits and growth prospects. And the US economy could get into trouble even earlier, should the country's share markets falter. Much of the consumer demand has been boosted by the expectation of stock owners that they can finance their lifestyle through capital gains, that is rising share prices. The experts warn that "there is a risk ... that share prices might fall significantly ... (which) could generate a marked slackening in consumer demand". No rate cuts The OECD report was written before the US Federal Reserve announced that it had a "bias" towards raising interest rates, but the economic survey supports this stance. "Additional cuts in short-term (interest) rates do not seem appropriate", write the authors of the report, even suggesting that it may be necessary "in the near future" to raise interest rates. Education, pensions, health warning The OECE, however, has detected a few black clouds on the horizon. There are severe doubts whether the US pension system can cope with the retirement of the generation of baby-boomers. Another problems is the financial health of country's medical care system. And finally there are big question marks over the quality of the US education system. Improvements there could help substantially to sustain economic growth, suggest the OECD experts. The OECD studies economic developments on behalf of the governments of 29 leading industrialised economies.
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Examples
1 Two years after people began to hear about China's economic "soft landing," now it has finally come about. At least, the buzz word has materialized in the real estate industry, China's most important engine for domestic spending.
2 The BlackRock Investment Institute said in a Thursday report that its base case for China is a soft economic landing. China is likely to undershoot its current five-year annual real growth target of 6.5 percent, but that is not the end of the world. Even real GDP growth of 5 percent would be healthy for a roughly $10 trillion economy.
3 China's soft landing next year means volatility for emerging markets (EM), but seasoned investors could capture hidden opportunities, said BlackRock Inc, the world's largest asset manager.