Chinese economy could be showing glimpses of stability

The numerous attempts by Beijing could finally begin to produce results as there are some very early signs of stabilisation according to some economists’ forecasts. However, it could still take months for the Chinese economy to reverse its current slowdown of performance.

According to a survey undertaken by the Wall Street Journal, it has been estimated that the Chinese economy grew during this year’s first quarter by 6.7%, which is marginally lower than the first quarter of 2015 performance of 6.8%. Each year, after the end of February and hence the Chinese New Year holiday celebrations, local production of goods resumes and hence boosts spending in the economy.

Production data are still not pointing to any solid recovery at the moment. However, industrial profit margins have shown an increase in March by 6% compared to a 5.4% increase for the first two months of the year, also known as the Spring Festival. There are estimates that investment in physical assets such as real estate, machinery, and technology also soared by 10.4%, whereas during January-February the growth was 10.2%. The retail sector during March might have increased by 10.5%, which shows improvement compared to the 10.2% increase at the beginning of the year.

Chinese policymakers are working towards amending a number of taxation rules that will work to the benefit of the business sector as they will allow for the reduction of liabilities towards the government. There are also other legislation changes that enable firms to increase their amount of leverage and therefore raise capital for new projects. For more than a year, the Chinese central bank decided for a number of interest rate cuts and also trimmed the required amount that local banks should maintain as reserves as part of its efforts to accelerate economic growth.

There are estimates that the Chinese Consumer Price Index (CPI), which is essentially the measure of a nation’s inflation level, increased during the last twelve months until March by 2.5%. This would be a noteworthy improvement from the previous month’s increase of 2.3% and would add another straight month to the already four-month series of inflation growth. It is forecasted that the 1-year Producer Price Index (PPI) might have a decline of -4.6%, but even that result would be a slight improvement of the previous month’s result of -4.9%.

The slowdown of the Chinese economy’s growth has been a major concern for investors during the last months and raised questions about the global financial markets’ performance. Given that it is the world’s second largest economy, and the second largest importer of goods and commercial services, it is unavoidable that its performance affects the rest of the financial markets.

The Chinese stock markets had a mixed performance during last week’s trading session. The FTSE China 50 posted mild increases during most of the week, but during Thursday there were losses of 2.7% which limited the weekly performance. The index eventually ended up with weekly losses by 0.7%. However, even the slightest likelihood of the world’s second largest economy to return to solid growth could be good news to the rest of the financial markets.

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