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What's going on?
The economic situation in China is starting to look more muddled than it was previously this year. Last week, some positive data came out, but on Monday, new data suggested Chinas economic growth could be slowing down.
What does this mean?
A measure of investment (i.e. activities like companies buying new machinery) declined from prior readings, in particular by private companies (rather than government entities). That points to lower economic growth and is an indication that private companies are feeling less confident generally.
On the brighter side of things, retail sales (like sales of televisions and running shoes) grew 10% in May versus one year ago. That indicates that the health of the Chinese consumer is holding up pretty well.
Why should I care?
For markets: The effect of Chinas government-led stimulus is probably fading somewhat. Its pretty clear that Chinas government made a big effort earlier this year to boost its economy. That was reflected in a bunch of data that showed Chinas economy improving (as well as higher commodity prices for the rest of us). But its likely that the stimulus didnt kick start the economy into a state where it can maintain its growth rate without further supportive measures (which could be forthcoming if economic growth does indeed slow).
The bigger picture: Many countries are now quite reliant on government- and/or central bank-led support. The European Central Bank (ECB) and Japans central bank have been pursuing aggressive policies aimed at boosting their economies – although, so far, with limited success. The effectiveness of the Chinese governments attempts to boost its economy appears to be diminishing. The US is trying to move in the opposite direction (by raising interest rates, potentially), but thats proving difficult as economic weakness is leading the central bank to keep interest rates low. Despite all the efforts, global economic growth remains sluggish – and, unfortunately, its quite possible that further stimulus wont change that…
Originally posted as part of the Finimize daily email.
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