Checking In On China

At the beginning of March, China lowered its growth forecast for 2015 to 7% (from 7.4% in 2014). 

At a meeting this past weekend, the governor of the Chinese central bank warned of the potential of deflation.

Financial markets have reacted to this with expectations of further easing of monetary policy. The Peoples Bank Of China has lowered interest rates twice since November.

Chinese leadership has referred to the slowing growth as "the new normal" as they try to reduce expectations for growth and emphasize the "restructuring" of the economy to focus on trade and investment initiatives:

“China’s economy shouldn’t be viewed only by its growth rate,” Mr Xi said. “China’s economy entering the new normal will continue to provide countries, including Asian nations, [with] more markets, growth, investment and co-operation opportunities.”

more here: http://www.ft.com/intl/cms/s/0/05c7a06c-d5ec-11e4-a598-00144feab7de.html#axzz3Vry487fz

What is important here is to recognize the continued global theme that deflation is the key concern for central bankers as they monitor how the global economic situation is evolving.

While it is expected that the US Federal Reserve may start with an interest rate increase in September (and chairwoman Yellen has been quite clear on this point so that it will reduce the impact on financial markets), the theme of deflation is still a major priority .

What we also must remember (and is one of my ongoing blog themes) is that central bankers will continue to engage in dialogue in order to ensure that there is coordination with their efforts to compliment each other's policies.

Looking to the future, as China growth slows (which is widely expected), it is important that the Advanced Economies take up some of the slack to get keep global growth on track.

(click on the chart to enlarge it)

 The views expressed are those of the author, Scott Tomenson, a Raymond James Financial Advisor, and not necessarily those of Raymond James Ltd. It is provided as a general source of information only and should not be considered to be personal investment advice or a solicitation to buy or sell securities. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor's circumstances and risk tolerance before making any investment decision. The information contained in this blog was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. Raymond James Ltd. is a member of the Canadian Investor Protection Fund.