CHINA: RECOVERY ON TRACK

CHINA: RECOVERY CONTINUES TO STRENGTHEN

Flemming J. Nielsen | Danske Bank A/S

FX Street, December 10, 2012

On balance the November data released so far suggests that the recovery in China remains on track supported by improving domestic demand. We maintain our forecast that GDP growth is set to accelerate to 7.8% y/y in Q4 from 7.4% y/y in Q3, but there now appears to be some upside risk to our forecast. We maintain our above-consensus forecast of 8.6% GDP growth in 2013.

While the headline investment data disappointed slightly, the overall investment picture still appears to be improving, supported by increasing infrastructure spending and continued recovery in the residential property market where sales of new homes and housing starts improved markedly in November.

Although the volatile foreign trade data disappointed in November, exports still appear to be recovering moderately as suggested by the recent improvement in new orders in the manufacturing PMIs. However, exports to Europe remain very weak, while exports to other emerging markets in Asia are strong. The external development is the biggest short-term risk for China.

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