The second half of 2010, as expected will have a stabilizing impact on the global economy, as both India and China reign in costs, balance manufacturing and growth, control monetary spending and sweep up any excess liquidity from the markets.
On Monday, China’s National Bureau of Statistics released the nationwide index of urban property prices, covering 70 cities. According to the report, property prices fell by 0.1 percent in June from May this year, a first in 16 months. Nonetheless, the property price index for June was still 11.4 percent higher than the same time a year ago, an increase that slowed from the 12.4 percent rise in May. Meanwhile, net new lending fell to RMB 603 billion, compared with RMB 639 billion in May. Credit growth slowed to 18.2 percent from 21.5 percent in May.
Also balancing out rapid growth in manufacturing and industrial production during the last few months, India’s industrial output slowed in May to 11.5 percent from a year earlier compared with a 17.6 increase in April. The extremely high growth rate of the previous few months was not a sustainable level for the country, D.K. Joshi, chief economist at Crisil, told Businessweek.
As both countries graduate towards pre-financial crisis levels of growth, economists expect both markets to cool down slightly as effects of tightening measures taken earlier in the year reign in.
In order to orchestrate a soft landing for the Chinese economy which has been buoyed by huge speculative investments in property, spiking up rates, Beijing had in mid-April unveiled a package of measures, making it harder for investors to get mortgages for second homes and increasing land supply for housing construction.
Still reeling from the impact of cooling the real estate market, analysts expect prices of China’s property market to fall further, given that transaction volumes in most cities have fallen by more than half. Standard Chartered estimates that house prices will fall by 10-20 per cent in most cities and by 20-30 per cent in Shanghai, Beijing and Shenzhen, which saw the steepest prices increases last year.
Kenneth Rogoff, the former International Monetary Fund chief economist, told Bloomberg last week that property prices could “collapse”, putting pressure on the banking system.
Nonetheless, analysts haven’t hit the panic button yet. Although there are other signs of weakening domestic demand, including slowing growth of car sales and electricity generation, the cooling in the property market is a sign of Beijing trying to control the market rather than letting the property bubble burst, which could trigger a global meltdown. However, most analysts are also still in a wait and watch mode – China is expected to release broader economic indicators for June and the second quarter this Thursday. Numbers released will be studied keenly for any indication economic growth easing from the first quarter’s rate of 11.9 percent.
Further, the drop in China’s property prices, has affected commodity and stock markets globally. On Monday, Brazil’s Bovespa stock index fell for the first time in four days, Copper, gold, iron ore, oil and cement prices have also fallen.