eToro Update: China – Where Is The Growth?

by Joe Oliver, Forex Trading-Pips

eToro provides an Update on China – Where is The Growth? Click Here to claim your $20 gift coupon with eToro 

eToro China GrowthLast week the World Bank cut the 2013 gross domestic product estimates for China, adding to that disappointing economic data and tightened monetary conditions, pressure on the World’s second largest economy is bigger than ever. But what does it mean for forex traders and especially the AUD and NZD.

In 2012 China’s economy grew at its slowest pace in 13 years and so far this year data has been disappointing, showing signs that the country might miss its growth target of 7.5 % for this year. In the first quarter of 2013 the gross domestic product expanded at a 7.7% year over year rate, which were one of the main reasons why the World Bank revised the Chinese growth severely down from 8.4% to 7.7%.  However, much speculation about the true value of these numbers has been questioned, especially when it comes to nationwide figures like GDP, which are looked upon with scepticism outside of China. The real growth rate may well be lower, it certainly is not higher.

China’s economy is highly depended on its export, if exports do not prosper it is difficult for the economy to thrive. Having one week left in the last month of the second quarter exports are expanding at a 7.9% yearly pace. Annual imports fell 0.3% in May far below the 6.6% forecast and the 16.8% surge in April. Imports expanded 5.2% in 2012 and 25.3% in 2011.  Furthermore the flash HSBC Purchasing Managers’ Index fell to 48.3 in June from May’s final reading of 49.2, drifting further away from the significant 50-point level, which depicts expansion from contraction. Adding to that a PMI survey, an index measuring overall new orders dropped to 47.1 in June, the lowest reading in 10 months, suggesting demand is weakening both at home and abroad.

Implications for AUD and NZD?

With Chinese growth expected to be much lower than initially anticipated, we could see a trickle-down effect on the AUD and the NZD.

Recall, the AUD/USD went on a steep drop in May thanks interest rate cut speculation. With China – one of Australia’s biggest clients in terms of raw materials and minerals – slowing down, the pressure may turn to the Reserve Bank of Australia to do more. This might result in added pressure on the Australian economy, sparking expectations of another rate cut sometimes over the next couple of months.

Meanwhile, let’s not forget that China is New Zealand’s second largest trading partner. Slow growth from China, will mean lower demand, which in turn will hurt the New Zealand economy and also force the Reserve Bank of New Zealand to take some action.

While the World Bank downgrade of China’s growth didn’t have the biggest effect on price action, keep an extra eye open if you are an AUD, NZD or Commodity trader as any changes from the World’s second largest economy will undoubtedly affect the FX market.

What do you think will happen with China? Share your thoughts in the comment.

….More at China – Where is The Growth

Click Here to claim your $20 gift coupon with eToro 

More reading