China Riding The Global Economic Recovery

The global economic recovery is strengthening and becoming more synchronized, according to updated projections for 2017 and 2018 by both the Organization for Economic Cooperation and Development (OECD) and the International Monetary Fund (IMF). China, the world’s second largest economy, is an important part of this improved outlook, and its equity markets have been outperforming.

Last year’s global growth was 3.1%. The OECD is forecasting a 3.5% advance this year and even stronger, 3.7% growth in 2018. China’s economic growth rate is projected at 6.8% this year, compared with 6.7% in 2016. The OECD anticipates moderate slowing to a 6.6% pace in 2018, in response to some easing of stimulus measures and efforts to stabilize corporate debt and further balance the economy.

The IMF sees the present acceleration of the global economy as the broadest in the past 10 years. Their economists project  a 3.6% advance this year, slightly faster than the OECD estimate, and 3.7% growth in 2018. China’s economy is projected to grow 6.8% this year, a 0.2 percentage point increase over the IMF’s April forecast. Similarly, their forecast for 2018 has been increased by 0.3 percentage points to 6.5%, based on the expectation that expansionary policies will be sufficient to maintain such an advance and external demand will remain strong.

The latest economic data for China suggests some easing in growth momentum, but the picture is mixed. Export growth slowed in August, as did investment growth. In contrast, the official manufacturing PMI (Purchasing Managers Index) for September rose, as did the official non-manufacturing PMI. However, the Caixin PMIs for manufacturing and for general services, published by Markit, both declined. The main difference between the official and Caixin manufacturing PMIs is the broader coverage of the Caixin measure, which includes more small enterprises. That measure indicated that manufacturing continued to expand in September but at a slightly weaker rate. The Caixin general services PMI, however, slipped to its lowest level since December 2015.

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