“First, the government will expand jobs in public sector, since tax revenue has been robust and the government has enough room to spend. Second, the administration is likely to adopt business-friendly policies to facilitate job creation,” said Lee Sang-jae, chief economist at Eugene Investment and Securities.

“However, these policies would be effective only in the short term, simply to prevent further deterioration.”

“From a common-sense standpoint, board members won’t be able to support a rate hike,” Oh Suk-tae, an economist at Societe Generale in Seoul said.”In addition to external factors including the Turkish crisis, the job data made the monetary decision clear. Based on the trend, my view is the data predicts negative jobs growth in the near future.”

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IFM Correspondent

January 20, 2017: A gauge of UK house prices fell for the first time in five months in December as the supply of properties for sale remained weak and values slumped in London.

The Royal Institution of Chartered Surveyors (RICS) said its index declined to 24 from 29 in November, indicating that a smaller majority of respondents saw price gains. Predicted sales over the next three months also slowed, with only 4 percent more respondents anticipating an increase. However, the year-ahead sales outlook rose slightly.

“A familiar story relating to supply continues to drive both the sales and lettings markets, impacting on activity, prices and rents,” said Simon Rubinsohn, chief economist, RICS. “The latest RICS survey provides further evidence that both price and rent pressures are continuing to spread from the more highly valued to more modestly valued parts of the market, for good or ill.”

Supporting the predicted slow start to 2017, the survey showed that the number of new house buyers rose only marginally in December following much stronger figures for the previous four months.

According to the report, house prices are expected to rise in 2017 with the exception of London where expectations remain relatively subdued.

London was the only area to experience a drop in prices while the North West of England had the strongest price growth.

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IFM Correspondent

October 24, 2016: Only a few weeks is left before the US chooses its 45th president. Historically, every US president elected till date has faced a recession or a recession-like scenario. A Wall Street Journal survey in June of more than 60 economists shows that the odds of a recession within the next 12 months are about 21%, a rise of two percentage points higher than the poll taken in April.

“If the next president is not going to have a recession, it will be a US record,” said Gad Levanon, chief economist for North America at the Conference Board in New York. In the United States, the unofficial beginning and ending dates of national economic expansions have been defined by National Bureau of Economic Research (NEBR), a private non-profit research organisation. The NBER defines expansion as a period when economic activity rises substantially, spreads across the economy, and typically lasts for several years.

It might be recalled that when President Barack Obama took office in January 2009, the nation was in midst of the Lehman crisis. When George W Bush started his tenure in 2001, he inherited a recession-like scenario.

The current economic expansion, which is 83-month-old, is already the fourth-longest in more than 150 years. According to studies, it is showing signs of wearing off. In fact, the history of cyclical expansion suggests that the odds are significantly better than 50-50 that the US will have a recession within the next three years. US’s real GDP growth is on a downward trend over the last four quarters, according to the US Bureau of Economic Analysis (BEA).

A lot will also depend on how Brexit unfolds. An unstable EU will affect US in more than one way. Exports, which have been a major contributor in the nation’s post 2008 economic recovery, has suffered in the past few years, thanks to slower growth in Europe. Brexit will only exacerbate this. Historically, the UK has acted as the main channel for US to express its political and economic will in Europe. With the UK out of the European Union, the US will find it harder to influence Europe.

Hence, many are of the belief that the US is overdue for a recession even if Clinton comes to power. According to a report in Yahoo, findings by Tax Foundation show that a Clinton presidency would reduce GDP by 1% over the long-term and cause a 0.7 percent drop in after-tax income for the top 10% of taxpayers.

However, Tom Elliott, deVere Group’s International Investment Strategist, does not foresee much change if Clinton wins. “Assuming Clinton wins, I don’t expect much change from current growth rates (between 1 and 1.5%). She will be under pressure to be ‘tough’ on foreign trade, so Pacific and European trade deals look vulnerable. But the positive effect of completing these is only long term.”

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Suparna Goswami Bhattacharya

August 3, 2016: Of late, China has been less in the news for its ‘slowdown’. Economic activity in the country has stabilised in recent months, mostly on the back of the property market rally and strong infrastructure investments.

But, there is another challenge before the economy — slowing growth in labour productivity. The country is moving away from manufacturing towards services, a phenomenon which is called deindustrialisation. Though most economies in the world go through this phase, in China’s case it has been ‘premature’.

Deindustrialisation is a process of social and economic change caused by the removal or reduction of industrial capacity or activity in a country or region, especially heavy industry or manufacturing industry. It implies that productivity growth through rural-urban labour migration has started to slow, clouding the medium/long-term growth prospects if this trend is entrenched.

Qu Hongbin, chief China economist, HSBC, says both economic theory and empirical evidence suggest that premature deindustrialisation in developing countries can be damaging. “It blocks the main channel of productivity growth, and therefore reduces the economy’s potential growth rate and its prospects of catching up with more advanced economies. Given that China’s GDP per capita is only 14% that of the US, we believe it is way too early to shift towards services-led growth,” says Hongbin.

Around 2008-09, the industrial sector was affected by weakening external demand, which forced China to follow a different path.

Glenn Maguire, chief economist, South Asia, ASEAN and Pacific, ANZ, says, “The model was to shift economic growth away from reliance on exports and investment towards domestic consumption. Aligned with this, the government aimed to accelerate the growth of China’s services industries whilst targeting a reduction in industries suffering from overcapacity or inefficiencies – largely heavy industry associated with infrastructure and industrial production.”

From 2013, the services sector replaced the industrial sector as the biggest contributor to

China’s economic growth. According to data by HSBC, in Q2 2016, the services sector accounted for 51.9% of overall real GDP growth in China, compared with 40.7% for the industrial sector.

The economy obviously saw the benefits of the move. To begin with, the fast expansion in the services sector helped prevent GDP growth from sliding too fast. Between 2012 and 2015, the services sector has maintained robust growth of around 8.1% y-o-y, while output growth in the industrial sector decelerated from 8.2% y-o-y to 6.0%. Therefore, across the same time period, overall GDP growth fell by less than 1ppt (from 7.7% y-o-y to 6.9%), despite the sharp decline in the industrial sector.

According to China economist Chang Liu who works independently, the services sector has been able to maintain employment levels. “Despite slower GDP growth due to the underperforming industrial sector, China maintained healthy growth in jobs at 13m per year, all thanks to the services industry which is more labour intensive than manufacturing,” says Liu.

Though in the short run such a move did prevent a hard landing for China, from a long-term perspective a premature shift to services-sector led growth implies a huge efficiency loss. Jing Li, economist, HSBC, says, “The biggest source of productivity growth comes from the transition of labour from the agricultural sector to non-farm sectors. Therefore, the sector distribution of those migrant workers determines whether the economy is growing in the most efficient manner.” To this extent, this reshuffling towards the service industry means that a less productive sector is replacing the manufacturing sector as the main absorber of rural migrant workers.

An HSBC report states that between 2012 and 2015, the total number of migrant workers in the manufacturing sector declined by nearly seven million, compared with an increase of five million in the three biggest services sectors — wholesale and retail, residential services, transportation and logistics. Based on 2015 statistics, each worker in the manufacturing sector generated RMB45,000 more output than their counterpart in the three biggest services sectors.

Additionally, manufacturing industry is always on tenterhooks since it has to constantly upgrade itself in order to stay competitive and relevant. This improves the overall health of an economy — something very essential for a growing country.

“China still enjoys a high savings rate of nearly 50% of GDP. It is crucial that China does not pursue rebalancing towards consumption and thus lose the window of opportunity to catch up with more advanced economies. To avoid the middle-income trap, China needs to make more efficient investments and continue on the industrialisation path – this will be a challenge,” concludes Hongbin.

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Beijing, July 14, 2014: Consumer price rise eased a tad in June in China compared to May, official data released on July 9 said, even as an independent survey of its manufacturing sector – a gauge of the economy’s health – showed factory output rising for the first time since January and stocks of finished goods declining at the strongest rate since September 2011.

Data from China’s data office, the National Bureau of Statistics, said the price index had gone up 2.3 percent in June from a year-ago period, while it was down by 0.1 percent month-on-month. In fact, economists felt the drop, as compared to May, would allow policymakers more leeway to introduce measures in a bid to propel economic growth.

“Inflation isn’t really going anywhere,” The Wall Street Journal quoted HSBC analyst John Chua as saying. “This probably gives Beijing more policy flexibility. They don’t worry about the economy running at full capacity,” Chua said.

The annualised 2.3 percent spike in consumer price index – a measure of inflationary trends – was in line of what was expected. It was a notch below the increase of 2.4 percent predicted by a panel of 21 analysts polled by Wall Street Journal. A similar Reuters’ poll also forecast an increase of 2.4 percent after a 2.5 percent rise in May.

The increase, however, was considerably lower than the annual target of 3.5 percent set by the government.

Bill Adams, economist at PNC Financial Services Group, found the inflation figures within predictions and auguring well for consumers. “Low inflation is good news for Chinese consumption growth, since it preserves the purchasing value of consumers’ disposable income,” he told CNBC.

China’s first quarter growth this year plummeted 7.4 percent compared to the January 1-March 31 period in 2013, the feeblest pace since 2012. Alongside, its manufacturing sector also notched its worst performance in April since last August.

Analysts polled by Bloomberg in May forecast the growth rate to fall even lower to 7.3 percent in 2014, compared to 7.7 percent last year. This would make it the lowest rate of growth since 1990.

The government, which has pegged an expansion of 7.5 percent for this year, has taken steps such as tax breaks for small businesses and measures to speed up investment in housing. The benign inflation figures should also help to stoke spending.

“What’s reflected here is no big surprise,” analyst Medha Samant told CNBC in a televised interview. “Food prices which make up a big chunk of the CPI basket have been stable in China.”

Samant, who is the investment director of Asian equities at Fidelity Worldwide Investment, said the process could be volatile at times, especially during festival times. “But they sort of trend at this slight inflationary level depending on demand, so we are well within expectations,” she said.

CONSUMER PRICE

On a year-on-year basis, the statistics bureau said, prices rose 2.4 percent in cities and 2.1 percent in rural areas in June, with food prices shooting up 3.7 percent and non-food prices by 1.7 percent.

The prices of consumer goods went up by 2.2 percent and the prices of services grew by 2.6 percent. On average from January to June, the overall consumer prices were up by 2.3 percent over the same period of the previous year.

Month-on-month in June, food prices went down by 0.4 percent, while the non-food prices kept at the same level. The prices of consumer goods decreased 0.2 percent while that of services increased 0.1 percent.

Food prices went up by 3.7 percent year-on-year, while that of for clothing rose 2.6 percent. Another area of immediate concern, prices for household facilities, articles and maintenance services, rose 1.2 percent year-on-year. The index for healthcare grew 1.3 percent.

Year-on-year increases were also seen in transportation and communication costs, which increased 0.6 percent. Of which, prices for fuels and parts for vehicles went up by 5.2 percent.

As a result, prices for touring and outing shot up by 7.8 percent while education service went up by 2.2 percent. Consequently, the price index for recreation, education, culture articles and services grew by 2.1 percent year-on-year.

The data also shows that property prices, always a source of concern in China, went north in the month under review. Prices for residence went up by 2.2 percent year-on-year. Of this, renting was 3.2 percent costlier while water, electricity and fuel went up by 1.2 percent.

“According to estimation, in the 2.3 percent growth in June, the carryover effect of last year’s prices rising accounted for 1.5 percentage points, while new prices rising factors in this year accounted for 0.8 percentage points,” the statistics bureau said in a statement.

MANUFACTURING UP

Meanwhile, what should also bring cheer is the latest manufacturing sector survey report by banking and financial services company HSBC, which said factories signalled the first improvement in overall operating conditions for six months in June.

“Output rose for the first time since January, and at a moderate pace,” the report said. “Growth was supported by the strongest expansion of total new work since March 2013, while new export orders rose for the second month running.”

Increased volumes of new business led to the quickest depletion of stocks of finished goods for nearly three years, while job shedding was the weakest in three months, it added.

The HSBC PMI – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – posted at 50.7 in June, up from 49.4 in May, and signalled the first improvement in business conditions since last December.

“That said, the rate of improvement was only slight and weaker than the historical average,” HSBC added.

The report said an improvement in the health of the sector partly reflected the first expansion of total new business placed at Chinese manufacturers for five months during June. “Furthermore, it was the strongest rate of new order growth in 15 months,” it added.

Reports from panellists suggested that improving market conditions boosted sales in the latest survey period. New export business also rose in June, albeit at a marginal pace that was weaker than May’s 49-month high.

Anecdotal evidence suggested that unfinished business rose due to increased amounts of new work. Consequently, stocks of finished goods declined at a moderate pace, which was still the fastest since September 2011.

“The economy continues to show more signs of recovery, and this momentum will likely continue over the next few months, supported by stronger infrastructure investments,” said Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC.

“We expect both fiscal and monetary policy to remain accommodative until the recovery is sustained,” he added.

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