During an interview at the Rocky Mountain Economic Summit last week, James Bullard, President of the St. Louis Fed, said something to the effect of
"Just in broad terms, we have to hope that Europe comes out of its recession soon and there will be at least some growth there, and we have to expect that the slowdown story in China only has a certain probability attached to it, and most likely China will meet its target growth rate of 7.5%."
Fortunately Bullard is a flexible guy who seems to be able to adjust; it is not at all clear what the actual rate of growth will be over the next year or so in China. From Foreign Policy,
Chinese economic growth slowed to 7.5 percent in the second quarter of the year amid efforts by the country's new leaders to rein in credit and pivot toward reforms.
Monday's economic figures are the second straight quarter of weaker economic growth in what is the world's second and largest economy and came on lower investment and declining trade figures....
But there is no sign from the Chinese central government that they plan to intervene in the economy and inject more stimulus. The government has set a growth target for 7.5 percent for 2013, and Monday's economic news raises the spectre that the country could miss it [emphasis added]...
"I think the second half will be even weaker. The government's tolerance for slower growth is definitely higher," Zhu Haibin, a JP Morgan economist, told the Financial Times. "Seven per cent is probably the growth floor."
But that's not all. There has long been some doubt about the accuracy (and veracity) of China's growth data. From a fascinating Forbes article (ht Jack):
What is the real growth figure? Seeking Alpha thinks it is around 6.7%, but even that figure is high. Among other factors, the severe contraction of aggregate financing in June, the marked fall in exports in May and June, and the evident shrinkage of the manufacturing sector throughout the quarter all point to an economy growing in the low single digits.
Moreover, it is unlikely that NBS, in releasing the Q2 number, had made proper adjustments to account for two phenomena. First, Beijing’s official statistics have not been adequately adjusted for inflation, as Standard Chartered ’s Stephen Green has pointed out. Second, fake trade invoicing substantially inflated GDP numbers. Rampant falsification has resulted in the simply unbelievable report of 14.7% export growth in April, the first month of the just-ended quarter. Although some say export growth was about 6% then, it seems like it was actually closer to 3%.
The most intriguing Q2 indications, however, are the comments of China’s finance minister, Lou Jiwei. Mr. Lou, speaking in Washington on Thursday, said growth in the first half of 2013 was probably less than 7.7%, “but not too far from it.” Then he spoke these words: “Our expected GDP growth rate this year is 7%.” ...
The National Bureau of Statistics has been issuing obviously incorrect data since the fourth quarter of 2011, but so far most everyone has largely bought the official storyline. Yet there is always a tipping point. Soon, Seeking Alpha will be right, and the issuance of obviously false data will trigger a collapse in confidence in China’s economic management. Beijing’s haphazard censorship of Lou Jiwei signals that the collapse could be soon.
China did not grow anywhere near 7.5% in Q2, and signs of leadership discord tell us this number is the biggest fib of the year.
There is much more in the Forbes article. Read the whole thing! And this morning, Paul Krugman writes in the NYTimes,
All economic data are best viewed as a peculiarly boring genre of science fiction, but Chinese data are even more fictional than most. Add a secretive government, a controlled press, and the sheer size of the country, and it’s harder to figure out what’s really happening in China than it is in any other major economy.
Yet the signs are now unmistakable: China is in big trouble. ...
Concerns like these should raise some important questions about the assumptions on which the Fed is basing its decisions.
My attendance at the summit was supported by several sponsors, including the Department of Economics at The University of Regina.