China: Downgrading GDP growth

by: Maritza Cabezas

Moving into the second quarter, China’s recently released economic data suggest that there will not be much improvement compared to the first quarter. External demand continues to disappoint. The global economy is not worsening, but the recovery is a slow one. Meanwhile, China’s domestic activity data including retail sales, fixed investment and industrial production are not strong enough to offset the weakness in external demand. A lot of this disappointing data has to do with reforms to support China’s economic rebalancing and with the removal of irregularities in the reporting of trade data. In any case, despite the slowdown stimulus measures are unlikely as these would not be consistent with the transformation strategy. As a result of the weaker economic activity in the first half of the year, we are cutting our 2013 GDP growth forecast to 7.5% from 8%, but we still expect stronger external and domestic demand in the second half of the year.