The 3 Week Diet System

Friday, June 12, 2015

Deflation alert in China, central bank lowers estimates

June 12:

(AGI) Beijing, June 12 - The threat of deflation is looming in China. Economists of the People's Bank of China, the country's central bank, have revised down the inflation estimates for this year from a forecast 2.2 percent, lower than the 3 percent ceiling established by the government, to 1.4 percent. The opinion of experts, which is confirmed on the Bank of China's website, does not coincide with the official opinion of central bank governed by Zhou Xiaochuan, although it is a signal for analysts that China will need further monetary easing measures during the next few months, while awaiting to feel the effects of the measures taken up to now. Inflation fell to 1.2 percent in May from 1.5 percent in April, thus re-opening the debate on the need for Beijing to pass new measures if it wants to avoid the risk of deflation. The analysts of the People's Bank Of China have also revised down the 2015 growth estimates from 7.1 percent to 7 percent. The downward adjustment coincides with the lower growth estimates for emerging Countries recently published by the World Bank. China's new growth estimate for 2015 is 4.4 percent against the previous estimate of 4.8 percent issued last December. This year, thanks to lower oil prices on world markets, India is expected to outperform China in growth, with its GDP expected to rise 7.5 percent. This trend is predicted to continue until 2017. Between November 2014 and May 2015, the central bank cut interest rates three times and banks' legal reserve provisions two times in order to facilitate loans and boost the economy, which grew 7 percent during the first quarter of 2014, an impressive rate compared to the world's other economies but its smallest since 2009.
  According to the Bank of China's chief economist Ma Jun - formerly at Deutsche Bank - it will take between six and nine months to see the effects of the quantitative easing measures passed during the last few months. "We have reasons to expect some modest recovery in sequential growth in the second half of this year," the analysts said in a report. Among the factors driving the recovery, the analysts mentioned the growing stabilisation of house prices and growing exports. The forecasts of the Bank of China experts are not endorsed by foreign analysts who fear a slowdown in China's economy in the second half of the year. "The financing costs of the real economy remain high. We expect more policy easing measures, including a 50 basis point reserve ratio cut in the coming week," Julia Wang, HSBC's greater China economist, wrote on the Financial Times this week. Among the thorniest issues hindering an enduring recovery is domestic consumption, which is still rather slow, and above all the slump in the real-estate market and the drop in the price of commodities, analysts said. (AGI) .


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