UK Economy Grows By 0.6%

The UK economy grew by 0.6% in the second quarter compared to the first three months of the year, according to the Office for National Statistics (ONS).

George Osborne tweeted the following reaction:

"GDP stats better than forecast.Britain's holding its nerve, we're sticking to our plan, the economy's on the mend.But still a long way to go"

However, as I always caution, when it comes to ONS statistics never trust them. They are always out of date and subject to revision.

In the meantime whilst people crack open a can of lager to celebrate the modest signs of economic recovery in the UK, let us not forget that China frets when growth bumps along at a "mere" 7%!

China's 7% Bottom Line

China's Premier, Li Keqiang, has underpinned global markets by stating that China’s “bottom line” for GDP growth is 7%, and the nation can’t let growth go below that.

Seven percent is not too shabby at all!

I would note that had a similar statement been issued by the ECB, wrt there being a bottom line for growth for the Eurozone (albeit with a bottom line of growth of far less than 7%), no one would have believed it!

Chinese Growth Falls To 7.5%

As expected China's economic growth slowed to 7.5% in the second quarter of the year.

The Chinese statistics bureau said the slowdown was partially due to deliberate efforts for structural reform and that a slower pace of growth was preferable in the long term.

Sheng Laiyun, spokesman for the National Bureau of Statistics, is quoted by the Telegraph:

"Some measures, including the intensified property tightening campaign, new rules to curb misuse of public funds and the exit some previous stimulus policies, will inevitably have some impact on growth in the short term, but they will benefit our economy in the long run."

Were this any other country such a rate of growth would be considered to be excellent.

The reality is that exceptional levels of growth, such as this, cannot continue indefinitely. Given the size of China and its economy, growth in excess of 7% isn't too shabby at all.
 

UK Avoids Triple Dipper

In a small ray of sunshine, the Office for National Statistics (ONS) reports that Britain's economy grew by 0.3% in Q1 of this year; thus the UK has avoided entering its third technical recession by the skin of its teeth.

The 0.3% rate of growth even managed to be larger than the 0.1% predicted by economists.

However, before people break open the Bollinger, it should be remembered that 0.3% is not exactly "stellar" and that China is feeling very sorry for itself having "only" managed to grow by 7.7%!

However, as I always say, never rely on ONS statistics they are out of date and will be revised upwards/downwards in due course.

China's 7.7% Growth Not Too Shabby!

China's GDP grew by 7.7% in Q1 2013, down from 7.9% in Q4 2012.

Were this any other country such a rate of growth would be considered to be excellent.

However, analysts have programmed themselves to expect ever improved levels of growth in China; thus many have been disappointed by the figures.

The reality is that exceptional levels of growth, such as this, cannot continue indefinitely. Given the size of China and its economy, growth in excess of 7% isn't too shabby at all.

The doom sayers need to calm down and take a more measured view.

Stagnation Abounds

The purchasing managers indexes (PMIs), released today make depressing reading.

Reuters reports that the composite Eurozone PMI fell to 45.9 in September, from 46.3 in August. A level of less than 50 denotes contraction.

The ongoing decline in PMI indicates that the ECB "plan" to buy Eurozone debt has not impressed companies, or restored their faith in an upturn.

It is not just Europe that is suffering, the ongoing recession in Europe has negatively impacted China (seen by many as the last best hope for pump priming a global economic recovery). Although the China manufacturing PMI rose in September to 47.8 from August's nine-month low of 47.6, it remains below 50 which indicates that Chinese growth is slowing/stalling.

In theory China and the Eurozone should work together to try to address their mutual problems. Unfortunately, China is less than pleased that there is still an arms embargo and that its products are subject to tariffs.

China Loosens Currency Controls

The People's Bank of China (PBOC) has announced that it is loosening currency controls over the Yuan. As from today, the Yuan can fluctuate up to 1% (the previous limit being 0.5%) in trading against the US dollar from a fixed price set by the central bank.

The move will please the USA, which has been banging on about the Yuan being "undervalued" for years. Ironically, the Yuan finished weaker against the Dollar at the end of today's trading.

Here is the full text:

"The People’s Bank of China Announcement [2012 No.4] 

Along with the development of China’s foreign exchange market, the pricing and risk management capabilities of market participants are gradually strengthening. In order to meet market demands, promote price discovery, enhance the flexibility of RMB exchange rate in both directions, further improve the managed floating RMB exchange rate regime based on market supply and demand with reference to a basket of currencies, the People’s Bank of China has decided to enlarge the floating band of RMB’s trading prices against the US dollar and is hereby making a public announcement as follows:


Effective from April 16, 2012 onwards, the floating band of RMB’s trading prices against the US dollar in the inter-bank spot foreign exchange market is enlarged from 0.5 percent to 1 percent, i.e., on each business day, the trading prices of the RMB against the US dollar in the inter-bank spot foreign exchange market will fluctuate within a band of ±1 percent around the central parity released on the same day by the China Foreign Exchange Trade System. 

The spread between the RMB/USD selling and buying prices offered by the foreign exchange-designated banks to their customers shall not exceed 2 percent of the central parity, instead of 1 percent, while other provisions in the Circular of the PBC on Relevant Issues Managing the Trading Prices in the Inter-bank Foreign Exchange Market and Quoted Exchange Rates of Exchange-Designated Banks(PBC Document No.[2010]325) remain valid.

In view of the domestic and international economic and financial conditions, the People’s Bank of China will continue to fulfill its mandates in relation to the RMB exchange rate, keeping RMB exchange rate basically stable at an adaptive and equilibrium level based on market supply and demand with reference to a basket of currencies to preserve stability of the Chinese economy and financial markets."

The fact that it is a rarity that the PBOC issues statements in English demonstrates that this move is targeted at foreign markets.