China’s real GDP rose 7.5% y/y during Q2-2014, up slightly from 7.4% during Q1. More interestingly, real GDP rose 7.9% during Q2 at a seasonally adjusted annual rate, up from 5.7% during Q1, the weakest quarterly gain since Q4-2008.
Apparently, a hefty expansion in credit was necessary to boost the economy during Q2, as I discussed yesterday. China remains dependent on credit-driven investment, which exacerbates the problem of excess capacity as evidenced by the 28 consecutive months of deflation in the PPI. Government officials want to change that, but don’t know how to achieve this goal. So they continue to prop up growth with short-term stimulus programs. Occasionally, they attempt to tighten credit, but back off quickly when growth slips.
Today's Morning Briefing: Bubbles In Fashion. (1) Yellen makes a statement. (2) A smart-looking outfit. (3) Sign of the times. (4) Fed is monitoring junk bonds and leveraged loans. (5) Equities are fairly valued with a few small exceptions according to Fed. (6) Senator Coburn makes a good point. (7) Too many bubbles to catch? (8) Bubbles will become more obvious once the Fed starts hiking interest rates. (9) The biggest bubble of them all. (10) Beware of “false dawns.” (11) More on China’s credit bubble. (12) Focus on over-weight rated S&P 500 IT.
