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ECONOMY: Monthly Economy Report
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MONTHLY ECONOMIC REPORT

By Anthony Lawry

Economic Uprising 2Worrying economic data from China continues as negative trade figures come in despite the continuation of the so-called soft-landing. China's trade figures for July were noted by imports numbers shrinking although conflicting reports suggest the domestic economy is doing better. Nonetheless, the overall state of the Chinese economy is still somewhat sluggish.


The Chinese trade surplus was $52.31 billion for the month of July and exports were down by 4.4% while imports were down by 12.5%. In spite of these dire figures, some suggest this may be a reflection of negative confidence and consumption sentiment forced on global markets from somewhat unrelated geopolitical events such as continued turmoil in the Middle East and the Brexit vote. Quantifying these sorts of qualitative sentiments may seem fruitless, but there is little doubt among economic and financial analysts that these negative numbers can somewhat be attributed to the negative global sentiment and overall global slowdown brought on by geopolitics. To a great extent China's economic model restructuring is also contributing to the lack of double digit economic growth which China grew so accustomed to throughout the 90s and early to mid-2000s.


BT 201609 030 01 EconomyBut not all signs point to a coming bear market. The United States, China's largest trade partner, and ASEAN, China's second largest trade partner, both had surprisingly high manufacturing growth in the second quarter. Nonetheless, Capital Economics' Julian Evans-Pritchard suggested that in light of increasing manufacturing numbers in economies with close trading ties with China, these countries have unfortunately not increased trade with China as a result and have not lifted China's exports out of its current slump as was anticipated by a number of economists. It appears that if Chinese business leaders and government officials want to increase growth, they may have to be patient in doing so which by all accounts appears to be the case so far. There is no doubt Chinese officials at multiple levels are capable of strengthening weak economic numbers.

BT 201609 030 02 Economy hlNonetheless, it would be understandable if China is becoming impatient with the steady flow of economic data. China's appetite for oil also seems to be waning as Bloomberg's Javier Blas reports that Chinese crude oil imports have fallen for the third month in a row to a six-month low down to 7.3 million barrels a day. This suggests that a continuation of the lack of energy demand is yet to cease of which even the short-term future is becoming increasingly uncertain for the global economy. Yet all of this weak petroleum consumption data should not necessarily only be attributed to China's overall economic state. As previously mentioned, a number of global factors including weaker overall gross domestic product (GDP) growth from trading partner countries is also at play. Clara Leonard from RBC Capital Market mentioned that "July trade data was a disappointment, highlighting that world trade growth remains weak."


BT 201609 030 02 EconomyIt is difficult to overstate how distracted international and perhaps even local investors have been from the turmoil riling markets throughout the world, especially in the Middle East and Europe. While some may suggest otherwise, the overall global economic slowdown should not be analysed necessarily as a result of a Chinese slowdown, but rather that the Chinese slowdown has been exacerbated by the slowdown in global growth. The collapse of a number of commodities markets like petroleum and mining has only made matters worse thanks in large part to the so-called 'energy revolution' in natural gas hydraulic fracturing (also known as fracking) in the United States. Even the Iranian nuclear deal has had an impact which frees up millions of barrels of previously sanctioned Iranian oil onto an already flooded market. In short, China has been somewhat the victim of overall negative global sentiment and events outside of their control.


That being said, not all economic indicators are negative for China's overall economic outlook. GDP growth in the second quarter was the highest it has been for nearly the past year. This data flies in the face of negative sentiment in the second quarter beating expectations and up 6.7% from a year earlier. The aforementioned negative figures clearly demonstrate that China's economic strength is uneven. Sectors like mining and exports are clearly not doing as well as what some within China would hope they would. Meanwhile, e-commerce and untraditional finance is thriving at a sustainable level. Even China's property market is rebounding with property prices in Shenzen and Hong Kong rising in addition to growth in new housing development projects and construction. Land purchases by developers, which largely helps local provincial economies, has also increased over the last few months.


cfp476898300All this conflicting data leaves one to wonder where exactly is China's economy headed. Furthermore, the truism that forecasts become more difficult to foresee as the forecast heads further out has become much of a cliché at this point. The global economic climate, much of which reflects upon and depends on China's economic situation, appears to be very uncertain in the near future. The Brexit fallout has yet to fully metastasize and will likely result in a number of other market shocks if the UK government cannot reach a deal with the European Union to maintain access to the common market while dropping the requirement of freedom of movement of labor. That all being said, the Chinese government is not merely sitting on the sidelines waiting for markets to play themselves out.


The New York Times reported that government investment over the past six months in investment fixed assets rose by a large 23.5% while private investment shrunk to nearly 2.8% in terms of growth. That is to say, the government leaders are still involved in economic growth while private investors are merely trying to get a return in on their investments. This could be in part due to the fact that private investors have less at stake when it comes to the development of the country. Regardless, there is little to believe that China will no longer become the world's largest economy in terms of nominal GDP in the coming decades.


Overall economic growth will return because these types of indices are cyclical and not static. It is up to the individual investor to recognize this and have the courage to ride out the current storm for continued sustainable growth in future which will likely come in spite of less than hoped quarterly and monthly numbers.

Worrying economic data from China continues as negative trade figures come in despite the continuation of the so-called soft-landing. China's trade figures for July were noted by imports numbers shrinking although conflicting reports suggest the domestic economy is doing better. Nonetheless, the overall state of the Chinese economy is still somewhat sluggish. 
 
 
The Chinese trade surplus was $52.31 billion for the month of July and exports were down by 4.4% while imports were down by 12.5%. In spite of these dire figures, some suggest this may be a reflection of negative confidence and consumption sentiment forced on global markets from somewhat unrelated geopolitical events such as continued turmoil in the Middle East and the Brexit vote. Quantifying these sorts of qualitative sentiments may seem fruitless, but there is little doubt among economic and financial analysts that these negative numbers can somewhat be attributed to the negative global sentiment and overall global slowdown brought on by geopolitics. To a great extent China's economic model restructuring is also contributing to the lack of double digit economic growth which China grew so accustomed to throughout the 90s and early to mid-2000s. 
 
 
But not all signs point to a coming bear market. The United States, China's largest trade partner, and ASEAN, China's second largest trade partner, both had surprisingly high manufacturing growth in the second quarter. Nonetheless, Capital Economics' Julian Evans-Pritchard suggested that in light of increasing manufacturing numbers in economies with close trading ties with China, these countries have unfortunately not increased trade with China as a result and have not lifted China's exports out of its current slump as was anticipated by a number of economists. It appears that if Chinese business leaders and government officials want to increase growth, they may have to be patient in doing so which by all accounts appears to be the case so far. There is no doubt Chinese officials at multiple levels are capable of strengthening weak economic numbers. 
 
 
Nonetheless, it would be understandable if China is becoming impatient with the steady flow of economic data. China's appetite for oil also seems to be waning as Bloomberg's Javier Blas reports that Chinese crude oil imports have fallen for the third month in a row to a six-month low down to 7.3 million barrels a day. This suggests that a continuation of the lack of energy demand is yet to cease of which even the short-term future is becoming increasingly uncertain for the global economy. Yet all of this weak petroleum consumption data should not necessarily only be attributed to China's overall economic state. As previously mentioned, a number of global factors including weaker overall gross domestic product (GDP) growth from trading partner countries is also at play. Clara Leonard from RBC Capital Market mentioned that "July trade data was a disappointment, highlighting that world trade growth remains weak." 
 
 
It is difficult to overstate how distracted international and perhaps even local investors have been from the turmoil riling markets throughout the world, especially in the Middle East and Europe. While some may suggest otherwise, the overall global economic slowdown should not be analysed necessarily as a result of a Chinese slowdown, but rather that the Chinese slowdown has been exacerbated by the slowdown in global growth. The collapse of a number of commodities markets like petroleum and mining has only made matters worse thanks in large part to the so-called 'energy revolution' in natural gas hydraulic fracturing (also known as fracking) in the United States. Even the Iranian nuclear deal has had an impact which frees up millions of barrels of previously sanctioned Iranian oil onto an already flooded market. In short, China has been somewhat the victim of overall negative global sentiment and events outside of their control. 
 
 
That being said, not all economic indicators are negative for China's overall economic outlook. GDP growth in the second quarter was the highest it has been for nearly the past year. This data flies in the face of negative sentiment in the second quarter beating expectations and up 6.7% from a year earlier. The aforementioned negative figures clearly demonstrate that China's economic strength is uneven. Sectors like mining and exports are clearly not doing as well as what some within China would hope they would. Meanwhile, e-commerce and untraditional finance is thriving at a sustainable level. Even China's property market is rebounding with property prices in Shenzen and Hong Kong rising in addition to growth in new housing development projects and construction. Land purchases by developers, which largely helps local provincial economies, has also increased over the last few months. 
 
 
All this conflicting data leaves one to wonder where exactly is China's economy headed. Furthermore, the truism that forecasts become more difficult to foresee as the forecast heads further out has become much of a cliché at this point. The global economic climate, much of which reflects upon and depends on China's economic situation, appears to be very uncertain in the near future. The Brexit fallout has yet to fully metastasize and will likely result in a number of other market shocks if the UK government cannot reach a deal with the European Union to maintain access to the common market while dropping the requirement of freedom of movement of labor. That all being said, the Chinese government is not merely sitting on the sidelines waiting for markets to play themselves out. 
 
 
The New York Times reported that government investment over the past six months in investment fixed assets rose by a large 23.5% while private investment shrunk to nearly 2.8% in terms of growth. That is to say, the government leaders are still involved in economic growth while private investors are merely trying to get a return in on their investments. This could be in part due to the fact that private investors have less at stake when it comes to the development of the country. Regardless, there is little to believe that China will no longer become the world's largest economy in terms of nominal GDP in the coming decades. 
 
 
Overall economic growth will return because these types of indices are cyclical and not static. It is up to the individual investor to recognize this and have the courage to ride out the current storm for continued sustainable growth in future which will likely come in spite of less than hoped quarterly and monthly numbers. 

 

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