Global Economy: No rabbits hidden in China's hat this time

Sun Aug 5, 2012 3:09pm EDT
 
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By Alan Wheatley, Global Economics Correspondent

LONDON (Reuters) - Investors will be looking to a data deluge from China this week to give the global economy a further lift after Friday's strong U.S. jobs report. They risk being disappointed.

Figures for July, starting on Thursday and covering everything from trade to bank loans and investment, are likely to show the world's second-largest economy is, at best, stabilizing rather than recovering briskly.

And while Beijing has both the will and the means to provide extra fiscal and monetary stimulus if growth flags, China-watchers rule out a repeat of the massive expansion of credit that successfully rebooted the economy after the global financial crash of late 2008.

That means China, and Asian economies increasingly tied to it, can do little to overcome the headwinds blowing in from the United States and, especially, Europe.

"The problems in Asia that are causing the slowdown come predominantly from outside the region," said Rob Subbaraman, chief economist for Asia at Nomura in Hong Kong. "Europe is a bigger than the U.S. as an export market for most Asian countries now, and it's a big investor in the region."

In today's interlocking global economy, Asia's travails are rebounding on the rest of the world. Siemens, Europe's biggest engineering conglomerate; BASF, the world's top chemicals maker; U.S. blue chip United Technologies; and Japan's Hitachi have all recently reported the impact of lower Chinese demand.

REBALANCING ACT

Asia as a whole wants to wean itself off exports and generate more domestic growth. China's current account surplus is just a third of what it was in 2007. The process, though, is generally slow.   Continued...