World Economics Monthly - Emerging Economies
Chinese house party shows signs of losing steam as debt worries mount...
Chinese house prices continue their rapid ascent. Bathed in fiscal stimulus, the average selling price of new homes in the countrys 70 largest cities has now increased for 13 consecutive months, with the annual rate of growth accelerating to 12.3% during October. However, with tighter lending regulations coming into force, the monthly rate of growth slowed from 2.1% to 1.1% between September and October. The ratio of household debt to GDP surged from 28.2% in Q1 2012 to 40.7% during Q1 2016 and is likely to have risen even further during subsequent quarters.
...but investment edges upwards
Amid this strong price growth, investment in residential property is picking up, with year-to-date (ytd) growth accelerating from 5.8% to 6.6% between September and October. Ytd growth in fixed-asset investment also accelerated slightly, from 8.1% to 8.3%, between August and October, having decelerated sharply during four out of the previous five months (from 10.7% in April). Industrial output rose by 6.1% in October, remaining within the narrow range (6.0%-6.2%) it has tracked for most of the past year.
Shock therapy for Indias black economy...
The Indian government initiated a huge monetary experiment on November the 8th by unexpectedly declaring the INR500 (US$7.28) and INR1,000 notes (which account for 86% of the value of money in circulation) invalid from midnight that day in an effort to crack down on the black economy. Dubbed demonetisation, the disruption arising from this unprecedented move is likely to have a negative short-term impact on GDP growth. However, it could boost both growth and tax revenue in the medium term.
...putting a rate cut back on the agenda
The annual rate of wholesale price inflation in India decelerated for the second month in a row, from 3.9% in August to a four-month low of 3.4% during October. Having reduced its benchmark repurchase rate by 25 basis points, to 6.25%, at its October meeting, a further decrease had not been expected this year. However, the softening of demand arising from demonetisation could change this.
Disinflation trend continues in Russia...
The annual rate of consumer price inflation in Russia decelerated for the fourth month in a row during October, from 7.5% in June to 6.1%. As recently as October 2015, this figure stood at almost 16%. During late October, the countrys central bank, which is targeting an inflation rate of 4.5% for 2017, indicated that its benchmark interest rate would remain unchanged at 10% for the rest of this year.
...helping to stabilise retail sales
With real wages having risen in annualised terms during seven out of the first ten months of 2016 (with the rate of increase averaging 2.2% y-o-y in the three months to October), retail sales continue to stabilise, declining by an average of 4.4% y-o-y during the three months to October. Following seven quarters of recession, there is some hope that real GDP will be close to stable in annualised terms during Q3 (it contracted by 0.6% in Q1 and 0.4% in Q2), but the fact that industrial output fell in annualised terms during this period (it also declined during October, by 0.2% y-o-y) makes this unlikely.
Retail sales still in decline, but business confidence is on the rise
Inflationary pressure continues to ease in Brazil, with the annual rate decelerating from 8.5% to 7.9% between August and October. However, retail sales remain weak, decreasing by 5.5% y-o-y in August and 5.9% y-o-y during September. Industrial output declined by 4.9% during the latter month its slowest rate of decline in more than a year. Following a change of government earlier this year, business confidence has improved significantly, with a net balance of 57% of companies forecasting an increase in output during the coming 12 months, up from 47% in July and a mere 20% in April, according to the Markit Brazil Business Outlook.