Friday, March 22, 2013

Market Update

Market Update from Mike Kuta
March 22, 2013
China growing strongly, risks manageable : OECD report.
China’s economy should expand by 8.5 percent in 2013 and more in 2014, with inflation and export demand the biggest near term risks to growth that should average 8 percent in this decade at current rates of investment and reform, the OECD said today. The Organisation for Economic Co-operation and Development (OECD) offered one of the most upbeat assessments of China’s prospects of any of the major multilateral institutions in its new Economic Survey of China, which was unveiled in Beijing. The 161-page survey, the first such report from the Paris-based OECD since 2010, was particularly optimistic about the outlook for investment spending in the world’s No.2 economy. It pointed to substantial deficits in rail and road capacity relative to other major economies at similar stages of development, as well as to sub-standard housing as offering scope for more profitable spending on infrastructure. “The level of investment in the private sector is well-founded by the rates of return, and in infrastructure, we still think there are tremendous needs,” Richard Herd, the head of the OECD’s China desk, told a media conference. “We’re positive on investment in the sense that we see rates of return remaining quite high,” he added.
Many private sector economists believe China’s GDP growth by the end of this decade will be nearer 5 percent than the 10 percent average annual rate it has hit for the last 30 years. China’s official growth target for 2013 is 7.5 percent and 7 percent on average in the five-year plan that runs to 2015. Growth slowed to a 13-year low of 7.8 percent in 2012, with weak demand in the European Union and the United States — the two biggest export customers — the main drag on growth. “Recent OECD simulations suggest that China could maintain high, though gradually easing, growth during the current decade, averaging 8 percent in per capita terms,” the report said, adding that the country was on course to become the world’s largest economy by 2016, adjusted for price differences.

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