Markets are fretting about a Chinese “hard landing” but – at least to this analyst – incoming news remains reassuring.
Monetary figures released today show a further recovery in the six-month rates of expansion of real money and loans. Earlier weakness in these measures was the basis for a forecast that the economy would slow sharply later in 2011 – see, for example, here.
The revival in real money growth reflects both recent slower inflation and a recovery in nominal expansion. The six-month increases in real M2 and loans are solid by historical standards, though real M1 is lagging.
Last week’s industrial output numbers – as well as the OECD’s Chinese leading index discussed on Monday – suggest that activity may already be responding to monetary loosening. If so, PMI results for December should reverse November weakness – judged here to be at least partly seasonal in nature.
It is, of course, important that the Chinese authorities sustain the recovery in monetary growth by loosening policy further – warranted by recent evidence that core as well as food price pressures have eased.
