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China posts stronger-than-expected economic growth

July 2017

China’s economy grew by 6.9% YoY during Q2, outstripping the Chinese government’s official annual economic growth target. Nevertheless, the news did not assuage broader concerns over the impact of China’s mounting debt burden, excess capacity in the manufacturing sector, and worries over a bubble in the property sector.

  • The IMF upgraded its economic growth forecast for China, but remains concerned about political instability in Brazil
  • Disappointing inflation data put pressure on the Reserve Bank of India
  • The WTO expects Brazil’s economy to remain weak for some time

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China’s economy posted annualised growth of 6.9% during the second quarter of 2017, having also expanded by 6.9% during the first three months of the year. This growth exceeded the Chinese government’s official annual economic growth target of around 6.5% . Although the news was generally well received , it did not manage to allay broader concerns over the impact of China’s mounting debt burden, excess capacity in the manufacturing sector, and worries over a bubble in the property sector. The Shanghai Composite Index rose by 2.6% during July.

“In India, pressure on central bank policymakers continued to intensify”

The International Monetary Fund (IMF) upgraded its forecast for China’s economic growth in 2017 from 6.6% to 6.7%, and in 2018 from 6.2% to 6.4%, citing the country’s “policy easing and supply-side reforms”. China’s industrial output rebounded in June, rising at an annualised rate of 7.6%; meanwhile, imports grew at an annualised rate of 18.9% during June, while exports rose by 8.5%. Elsewhere, retail sales increased to their highest level for more than a year during June, rising at an annualised rate of 11%. During July, China’s authorities launched a new programme – Bond Connect – which is designed to open up the country’s bond market and make it easier for foreign investors to buy and sell Chinese bonds.

In India, pressure on central bank policymakers continued to intensify amid calls to cut interest rates. The Reserve Bank of India’s (RBI’s) key interest rate currently stands at 6.25% . Disappointing inflation figures were compounded by lacklustre industrial production data in July. Annualised consumer price inflation fell from 2.18% in May to 1.54% during June, while the rate of wholesale price inflation dropped from 2.17% to 0.9%. The CNX Nifty Index rose by 5.8% during July.

Brazil’s economic growth is likely to remain weak for a prolonged period of time, according to a report by the World Trade Organisation (WTO) , although the WTO expects the country to begin a gradual recovery over 2017. The WTO believes that, although Brazil’s fundamentals are generally solid, the economy remains vulnerable to fresh political uncertainties and delays in tackling fiscal imbalances and structural reforms. Meanwhile, the International Monetary Fund (IMF) believes that Brazil’s economy is reaching a “turning point”; nevertheless, like the WTO, the IMF remains concerned about the impact of political instability. Over July as a whole, the benchmark Bovespa Index posted a rise of 4.8%.


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