China growth will not fall below the 7-7.5% range argues Deutsche Asset and Wealth Management

27th August 2013

China’s growth rate will not fall below the 7 to 7.5 per cent range so it will not face a hard landing argues Asoka Woehrmann, Co-CIO of Deutsche Asset & Wealth Management.

In a brief note issued today, Woehrmann says: “Market fears of a hard landing now appear misplaced. The Beijing government’s liberalization and deregulation measures will have a negative impact on economic growth in the short term. But they will be largely offset by current or future supportive initiatives, such as infrastructure projects and tax relief for smaller companies.”

He also suggests comparisons with the 1997 Asian crisis are overstated.

“Investor confidence in emerging markets is likely to recover gradually, but it will take time for recent outflows to be replaced in full. However, comparisons with the 1997 Asian crisis are excessive. Emerging markets are much better placed than they were sixteen years ago as regards debt levels, both in absolute terms and in the structure of the debt.

“In many major emerging markets, GDP will fall in the short term. In the medium term, the outlook is generally positive as a result of increasing demand from industrialized countries. Weak exchange rates are also improving emerging markets’ competitiveness. Moreover, I believe that occasional increases in inflation in these countries will not necessarily spark a new cycle of wage hikes.”

He suggests that while the growth potential of the BRIC countries i.e. Brazil, Russia, India and China is declining, other countries are filling the gap.

“While the growth potential of the BRIC countries is declining, other countries are filling the gap. The prospects are good for Mexico and the ASEAN states. South Korea and Taiwan in particular should see GDP grow significantly again in the third quarter. The outlook is less positive for countries with budget deficits. This applies to South Africa, Turkey and India, for example, and to a lesser extent also Indonesia and Brazil,” he says.

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