China’s government indicated a slowdown in the world’s second-largest economy is bottoming out, underscoring forecasts for policy makers to avoid cutting interest rates this year.
President Xi Jinping said expansion is on a “more stable footing,” the Xinhua News Agency reported May 31. An official manufacturing index released the next day showed a pick-up in growth, rising to 50.8 in May from 50.6 in April, after a separate gauge last week signaled a contraction.
Stabilization in Chinese industry adds to signs of strengthening in Asia after Japan last week reported an advance in factory output and South Korean industrial production and exports unexpectedly increased. A Bloomberg News survey of economists showed the People’s Bank of China is more likely to raise interest rates than cut them in the coming year.
“The positives are still outweighing the negatives in manufacturing — credit is supportive, housing is recovering and the inventory cycle is turning,” said Stephen Green, head of Greater China research at Standard Chartered Plc in Hong Kong. “By the end of the year we’ll have inflation running at about 4 percent and more evidence the economy is doing better.”
Standard Chartered estimates one 25 basis-point increase in lending and deposit rates in the fourth quarter and two in the first half of next year, taking one-year borrowing costs to 6.75 percent and savings rates to 3.75 percent by end-June 2014.
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