China Domestic Demand Drives Output Surge

Mukesh Buch
11 Dec, 2009
New York City

Chinese industrial production soared 19.2% in November, trade deficit shrank to the lowest level in the year, retail sales increased 15.8% in the month and consumer prices increased for the first time since January. Industrial production in India also surged.

[R]8:30 AM New York – Chinese industrial production soared 19.2% in November, trade deficit shrank to the lowest level in the year, retail sales increased 15.8% in the month and consumer prices increased for the first time since January. Industrial production in India also surged.[/R]

The latest economic data released in China showed a surge in domestic demand and shrinking role of international trade in the Chinese economy. The government stimulus is providing much needed support to the economy and raises the prospect of China recording its first trade deficit in 2010.

India also recorded sustained industrial activity but lower than expected electricity generation hurt the industrial activity.

China and India Industrial Production Surge

Industrial production index in China surged 19.2% in November from a year ago and consumer price index increased 0.6% in the month. Imports in the month surged 26.7% and exports declined 1.2% from a year ago month.

The rise in imports and industrial production shows that the quick stimulus provided by the Chinese government helped the economy despite the weakness in the exports to the U.S. and Europe. Chinese economy is expected to grow at more than 8%.

Exports in the month were $113.7 billion and imports were $94.6 billion. The international trade data is still 20% below the peak level seen in the last August but the domestic demand is rising and may spark inflation.

Trade surplus in the month declined to $19.1 billion from $24 billion in October. China is likely to generate trade deficit in 2010 if the exports do not recover and China continues to rely on domestic demand.

Retail sales in the month increased 15.8% and consumer prices gained 0.6%, first monthly gain in inflation since January.

Industrial production index in India increased 10.3% in October and in the first seven months the index gained 7.1% compared to a year ago. Manufacturing index advanced 11.1% and electricity output increased 4.7% in the month.

European Deficit Rises; UK PPI Rises

EU27 external current account recorded a deficit of €33.3 billion in the third quarter compared to €72.6 billion in the quarter a year ago and a deficit of €49.2 billion in the second quarter of 2009.

UK producer prices index or wholesale annual inflation for all manufactured products increased 2.9% in November. Input price annual inflation rose by 4.0%. This mainly reflects price rises in petroleum products and lesser extent food products.