China released inflation data today. September’s CPI was 3.1% yoy, up from 2.6%% the previous month. This was a seven-month high. Food prices picked up to 6.1% yoy up from 4.7%, mainly as a result of higher vegetable prices due to poor weather conditions. We expect inflation to reach around 3% yoy at the end of 2013, well below the 3.5% target set by authorities. Trade data was also released. Exports plummeted to -0.3% yoy in September down from 7.2% yoy. This was the result of base effects since regional over- reporting of exports started at this time last year. Export growth to G3 countries continued to show strong external demand. The relatively healthy import growth (7.4% yoy, up from 7%) suggests that domestic demand remains firm. Additional data, including industrial production, retail sales, trade and third quarter GDP will also be released this week. In general, data has been improving since June. We expect GDP growth in the third quarter to reach 7.7%, up from 7.5% in the second quarter.
India’s trade deficit dropped to USD 6.76bn in September, down from USD 10.9bn in August. Exports remain strong, rising 11% yoy, edging down from August. Imports plunged in September by 18% yoy partly as a result of a sharp decline in gold imports. Oil imports normalised after the large jump in August. Overall we expect India’s current account deficit to improve in FY 2013-2014 on the back of stronger exports, while gold imports should weaken even further. Meanwhile industrial production dropped to 0.6% yoy in August from 2.8% the previous month. Weakness was largely in capital goods. The measures that were recently taken are reducing imbalances, but they are also having an impact on economic activity. September’s PMI improved, but still remains subdued at 49.6. The IMF’s projections for GDP growth in India, released last week, have been marked down substantially, with growth foreseen at 3.75% in 2013 and about 5% in 2014. Our forecast for GDP growth has been adjusted to 4.5% from 5% in 2013.