July 16, 2009 / 6:46 AM / 11 years ago

China growth lifts world recovery hopes

BEIJING (Reuters) - China’s growth rate shot up in the second quarter on the back of a surge in state spending and bank lending, boosting hopes the biggest emerging economy will lead the way out of the worst global downturn since the 1930s.

A worker sweeps water off a street at the Central Business District in Beijing July 16, 2009. REUTERS/Jason Lee

A slew of accompanying data for June depicted an economy successfully making up for a slump in exports through domestic demand, prompting several economists to upgrade their forecasts.

“I’ve just revised my full-year forecast to 8 percent from 7 percent on this data,” said Ben Simpfendorfer, China Economist at RBS in Hong Kong. “I was expecting a much lower figure.”

In Japan, a Reuters poll showed manufacturers’ confidence has improved for four months in a row as exports and industrial output picked up, but the mood among services firms has slipped back to near a record low. Encouraging data from the United States and Europe and upbeat earnings from Goldman Sachs (GS.N) and Intel (INTC.O) in recent days has revived optimism that the recession is abating, driving up Asian stocks for a third day on Thursday.

“In addition to hopes for a recovery in U.S. corporate earnings, investors are welcoming growing signs of a recovery in U.S. economic data,” said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities.

Japan's Nikkei .N225 rose 0.8 percent, while MSCI's index of shares elsewhere in Asia Pacific .MIAPJ0000PUS was up 1.3 percent after touching its highest level since mid-June.

European shares were forecast to open mixed, as investors await the latest in a flurry of high profile earnings reports from JPMorgan Chase (JPM.N), Nokia NOK1V.HE and Google (GOOG.O).

CHINA TARGET

China’s annual gross domestic product growth accelerated in the second quarter to 7.9 percent, up from 6.1 percent in the first quarter, making it the best-performing big economy. Economists had forecast 7.5 percent.

There was also growth in investment in fixed assets in urban areas in the first half and in June industrial production. Retail sales, a rough proxy for consumption, rose 15.0 percent in June from a year earlier after May’s 15.2 percent increase.

Although statistics office spokesman Li Xiaochao cautioned the recovery was not yet on a solid footing, economists and the government said the overall performance put China on track to achieve its 8 percent growth target for the year — the minimum the Communist Party deems necessary to hold down unemployment.

“It’s very encouraging, the 8 percent growth target is in sight,” said Daniel Soh, an economist at Forecast in Singapore. “It’s by now clear that the fiscal stimulus package has offset the contraction in export activity.

China has pouring 4 trillion yuan (357 billion pounds) into a pump-priming package and state prompting has pushed bank lending to record levels.

JAPAN MOOD

Japan’s rebound in exports and output has fuelled hopes the world’s second-biggest economy may be recovering from its worst recession since World War Two, but the Reuters Tankan survey underscored the threat posed by anaemic domestic demand.

That could mean the Bank of Japan may have to extend again measures aimed at easing corporate credit strains, after just having decided on an extension until the end of the year when it ended a two-day policy review on Wednesday.

“Business sentiment and financial conditions are improving but from very low levels,” said Tatsushi Shikano, economist at Mitsubishi UFJ Securities. “I’m pretty sure the BOJ will have to extend the measures again when they expire in December.”

Sentiment among large manufacturers has improved sharply since hitting a record low in March, lifted by autos and electronics — key export industries, the Reuters Tankan showed. But confidence at non-manufacturers has slipped back near a record low hit in May.

Manufacturers and service-sector firms expect the situation to improve over the next three months, the poll showed.

The BOJ said in its monthly report on Thursday that the economy was likely to pick up over time, upgrading its outlook from the previous month when it had said the economy was likely to show clearer signs of levelling out.

Data from the United States, where the global financial crisis began when a housing boom soured two years ago, and from a Europe also mired in recession has been mixed in recent weeks, stirring uncertainty in markets on the strength of the nascent recovery.

But on Wednesday there were positive signs from both sides of the Atlantic.

A worker installs scaffoldings at a construction site in Beijing July 16, 2009. REUTERS/Christina Hu

U.S. industrial output declined at a slower pace in June and New York state’s factory survey posted its strongest reading since April 2008.

And European car sales showed the first monthly increase in over a year, helped by incentives for junking old cars in some major economies, though analysts cautioned that was also due to disastrous numbers a year earlier.

A steep drop in fuel costs drove down euro-zone consumer prices for the first time year-on-year in June, which should let interest rates remain low and give consumers some more buying power.

Writing by Alex Richardson; Editing by Kazunori Takada

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