GDP growth may drive up prices and cut trade surplus

15 january 2013

The rebound in China’s economic growth is likely to have driven up the GDP growth rate to 7.7 percent in 2012 and it will be higher than 8 percent this year, stoking expectations of inflation and a shrinking trade surplus, a top government think tank said on Monday.

“This rebound impetus may remain until the fourth quarter according to leading economic indicators that showed a recovery in domestic investment, especially in infrastructure construction and the property market,” said Zhang Yongjun, an economist with the China Center for International Economic Exchanges.

A stronger price increase trend may appear in the coming months in response to expanding domestic demand, raising the consumer price index to as much as 4 percent year-on-year in 2013, up from 2.6 percent in 2012, Zhang said.

Crdit Agricole Corporate and Investment Bank released a report on Monday that said that the eurozone economy is likely to remain weak this year.

“Major central banks are expected to maintain and expand quantitative easing while the European Central Bank lowers policy interest rates.”

Zhang said: “Excessive market liquidity will lift up global commodity prices and will add to inflationary pressure in China in the short term.”

Another potential risk for China stems mainly from a lack of investment funds, according to Zhang. The addition of capital sources is still not matching the increase in investment, which requires stronger fiscal support and broader financial channels.

The bureau plans to release the GDP growth rate for the past three months and the whole of 2012 on Friday.

Underpinned by accommodative monetary and fiscal policies, China’s GDP growth is likely to rebound to 8 percent year-on-year in the fourth quarter of 2012, up from the 14-quarter low of 7.4 percent seen during the July-to-September period, said Wendy Chen, an economist with Nomura International (HK) Ltd.

This rebound is supported by a modest improvement in exports and inventory destocking is coming to an end, according to Chen.

Nomura predicted the industrial output growth rate may climb to 10.6 percent in December from 10.1 percent in November. Fixed-asset investment is likely to rise to 20.8 percent year-on-year in December compared with November’s 20.7 percent.

In addition, retail sales may have increased by 15.6 percent in December, up from November’s 14.9 percent, the Japanese securities company said.