China data boosts potential for renewed global growth – 7 July, 2014

Home / Views / China data boosts potential for renewed global growth – 7 July, 2014

The world has been in thrall to Chinese economic data in recent months.

Fears that the Chinese Government’s moves to regenerate growth after a period of targeted restraint might not be sufficient to prevent a slowdown have given analysts everywhere some nervous moments. China has been so much the engine of global growth since the GFC that its continued momentum is essential – not least to Australia.

So sighs of relief must have been audible around the world this month when China reported that the Manufacturing Purchasing Managers’ Index (PMI) had climbed from 49.4 in May to 50.8 in June. That was enough for banking giant Barclays to lift its estimate of China’s 2014 growth from 7.2% to 7.4%.

That would be solid growth by any measure, but importantly it is also a vindication of the Chinese government’s economic management. After having deliberately reigned in the economy to curb inflation and potential asset bubbles it then introduced targeted tax breaks, export rebates and other measures to stimulate growth in smaller business enterprises. It was a delicate balancing act, but the rise in the PMI suggests it may be working.

Prices for iron ore, copper and rubber rose on the news.

The recovery in the iron ore price is particularly important for Australia. Data compiler Steel Index reported prices recovered to US$92.10 a tonne in late June after a period of sustained falls saw it sink as low as $89 on June 16 on the back of increased capacity from suppliers and fears of sluggish Chinese growth, Hellenic Shipping News (www.hellenicshippingnews.com) reported. Not quite back to the prices producers would like, but at least a step in the right direction.