Posts Tagged ‘ABN Amro Morgans’

Another turkey from ABN Amro Morgans regarding China

Sunday, February 1st, 2009

Last Thursday, we saw this comment from Michael Knox, the chief economist of ABN Amro Morgans in the AFR,

It is probable that this slowdown in China is going to be relatively short-lived. China went through a period of very rapid credit growth in 2006 and early 2007.

The central bank reacted by pushing up the reserve deposit ratio to the highest in a generation. The result of that was that growth in bank lending fell in the first half of 2008. The slowing in the economy this produced can now be seen in gross domestic product and confidence in data.

The slowdown seems primarily to be the result of domestic central bank action. In the second half of 2008, the Chinese central bank dramatically eased monetary policy. It rapidly cut the reserve deposit ratio. The result of that has been an equally rapid expansion of loan growth. For the year to December, yuan and foreign currency loans were yp by 17.95 per cent for the year. Yuan loans were up by 18.76 per cent.

The money supply also grew rapidly.

The lag between Chinese loan growth and the economy is no more than two to three quarters.

This means that the re-acceleration of loan growth should lead to an equally strong acceleration in the Chinese economy in the second half of 2009. At last there is good news from China in the form of the re-acceleration in bank lending.

Let us write our version of why the Chinese economy ‘should’ accelerate in the second half of 2009:

It is probable that this slowdown in China is going to be relatively short-lived.

Adelaide’s temperature went down to one of the lowest in the first half of 2008. The result of that was that growth in Chinese economy fell in the second half of 2008. The slowing in the economy this produced can now be seen in gross domestic product and confidence in data.

The Chinese economic slowdown seems primarily to be the result of Adelaide’s temperature. In the second half of 2008, Adelaide’s temperature increased progressively to one of the highest in a generation at the end of January 2009.

The money supply also grew rapidly.

The lag between Adelaide’s temperature change and the Chinese economy is no more than two to three quarters.

This means that the re-acceleration of Adelaide’s temperature should lead to an equally strong acceleration in the Chinese economy in the second half of 2009. At last there is good news from China in the form of the re-acceleration in Adelaide’s temperature.

The background understanding of this sacarstic humour can be found at Does correlation implies causality?.