The title of your report, I'm going to bring it up here.
Run, Rabbit, Run China, India 923. Just what what's what's the what's the
takeaway? Well, the rabbit is a little bit wobbly
out of the gate. And we have to admit it's gonna be a
soft start to the year because we still have the lingering effects from, of
course, the infection spike, for example, now.
There are some green shoots here. We know the Chinese New Year holiday.
We saw a pickup in travel, for example. But make no mistake, it will take a
couple months or so. We really see the economy start to gain
traction and we think the rabbit might actually gain some speed of the course
of the year. And by the second half, we're going to
see that rabbit catch the carriage. Going to be a better year than there was
the year of the tiger for sure for China.
But and also, of course, for the region, because the Chinese economy matters so
much for the region as well. So it's gonna be a acceleration over the
course of the year. And the markets are reflecting that as
of today. The positive tone, as you point out,
macro messages are positive. Equities, bonds and affects everyone
talks about consumption, catching that carrot, using you're using your analogy.
Is this consumption recovery? I mean, is this going to come to
fruition as everyone expects or are they going to be bumps along?
Well, consumption is the obvious when everybody talks about the travel
resumption, you know, book flights now before the holidays are all booked up.
But there is a second big driver as well.
And that's property. And that's we've been a little bit
overshadowed by the Headline News because remember, we see an
extraordinary property market recession in China on the construction side, on
the sales side. If you just stabilize that, you just
already going to get a strong growth impulse and you might actually see some
positive growth coming through there. So it's really the twin engines of
property market and consumer spending coming back.
There are some drags here. Exports, for example, maybe some local
government spending will be curtailed. But that's the two legs.
The economy will need to stand on the. I mean, to your point, a lot of people
talk about how there's just an enormous amount of savings that wasn't built up
on these household balance sheets because they were not able to spend on
property and spending. What what degree of confidence would you
attach to them being able to engender not just, you know, a property market
that remains stable? What a recovery in sales, because that's
another thing altogether. Yeah, I think we have a bit bit cautious
on that. Yes.
Well, we like the reopening story. Yes.
The rabbit will catch the carrot that you would get 5 percent growth plus.
But remember, it's 5 percent growth plus maybe five and a half.
If we're lucky, it's not going to 7 8 percent growth, at least in our
forecast, because there'll be some reticence among consumers deploying all
these excess savings. And in China in particular, a lot of the
savings were accumulated by richer households, whereas in the US, for
example, other countries, because of fiscal transfers, it was the middle
class that actually accumulate these savings and they could redeploy them.
Right. Fueled the consumption recovery in China
is a bit more of the upper classes accumulated that they're not going to
spend immediately. All those savings also as fewer savings
accumulated in China compared to the US. Right.
We our estimate is about 5 percent of GDP, which is not nothing, but it's not
the 13 percent plus that you saw in some of the Western economies because of
fiscal transfers. Fred, the whole idea of a run rabbit run
was actually a song written for a play called The Little Dog Laugh.
Now, which little dog or little dogs are going to be laughing as the rabbit runs?
Well, it's mostly the Asian dog's gonna laugh here because it's the Chinese
economy that has the biggest impact really on regional economies.
If you think from Southeast Asia in particular isn't the sweet spot here, of
course, Korea. We just saw a contraction GDP growth,
but they will get some lift from the Chinese recovery if you go further out.
Actually, a US economy may not feel the benefit from China's reopening.
On the contrary, you could argue that China's reopening puts really a leg up
on commodity prices, which complicates the job of the Fed to actually exit.
We just let Mark talk about the market pricing and cuts here potentially at the
margin. This year, we would actually argue that
China's reopening makes it harder for the Fed to deliver any cuts, thereby
prolonging high interest rates in the US, which is actually not necessarily
positive for U.S. growth.
But here in Asia, the growth impact outweighs the inflationary impact from
China reopening.