China’s Economy Pickup Facing Tough Challenges Next Quarter

Just as China’s economy is beginning to show some signs of a pickup, allaying fears of a hard landing scenario, economists are already warning that the upturn may be short-lived and could unravel as soon as the current quarter wraps up.

“We do believe the impressive rebound in July will be short lived due to temporary pent-up demand and a structural downward growth trend,” Ting Lu, China economist at Bank of America Merrill Lynch (BoFA) wrote in a report published Tuesday.

The stronger-than-expected growth in industrial production in July, for example, was driven by demand that was suppressed during the liquidity squeeze in June and improved confidence driven by the government’s mini package of fiscal stimulus measures, Ting said. This recovery in demand won’t be sustained, he added.

BoFA expects gross domestic product (GDP) growth in the world’s second largest economy to grow an annualized 7.6 percent in the third quarter, before edging back down to 7.5 percent in the final quarter of the year. The economy logged a 7.5 percent growth in the second quarter, down from 7.7 percent in the three months before.

via CNBC

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