Does China matter? (Not where you might think)

Posted by: Paul Donovan

17 Apr 2019
  • The media is getting very excited about the fact that Chinese GDP data was somewhat stronger than expected. This data is presented with all the quality and accuracy we have come to expect from China. China's GDP is not necessarily very important to the global economy – it is the integration, not the size of an economy that gives it global importance.
  • Chinese industrial production and investment spending may be more important signals. China has become a significantly larger global manufacturer – but rarely makes a product from start to finish. China is a link in the chain, so stronger Chinese production signals stronger production for other countries along the supply chain.
  • US February trade data comes out today. This gives a comprehensive picture of how US President Trump's taxing of US consumers and companies has affected trade. The process started at the beginning of 2018 with washing machines and solar panel taxes.
  • Eurozone consumer price inflation is not likely to be exciting. ECB President Draghi seems intent on moving the inflation target higher anyway (in effect). The UK's price data may be more interesting. Producer prices indicate corporate pricing power, with yesterday's strong labor market data indicating cost pressures.