. We revise our 2012 and 2013 forecasts; we now look for 7.8% growth in 2013, and a better H2 than H1
. We believe the interest rate cutting cycle has ended and expect the next move to be up, in late 2013
. The CNY should remain stable against the USD in 2012, but appreciate mildly as the trade surplus revives in 2013-14; we forecast USD-CNY at 6.19 at end-2013, 6.00 at end-2014
Today, we adjust some of our macro forecasts. We lower our GDP growth forecasts for 2012 and 2013 to 7.7% and 7.8%, respectively (from 8.1% and 8.7%). We expect clearer signs of the start of a moderate recovery to emerge in Q4-2012 and early 2013. We also now expect interest rates to remain flat until Q4-2013, versus our previous call of one more cut in the benchmark rate. We maintain our view that China will enter a rate-hiking cycle in Q4-2013, and continue to hike in 2014. This is based on our view that CPI inflation will average 4% in 2013, and move above 5% y/y in H2 2013. We keep our USD-CNY forecasts unchanged for 2012-13, and adjust our end-2014 forecast to 6.00 from 5.83.
The economy has changed, has Beijing?
This is not the economy Vice Premier Li Keqiang wanted to inherit. But it is the one he is going to have to run – and we hope, transform – over the next decade after he formally becomes premier in March 2013. Rather than the sudden collapse in demand Beijing faced in Q4-2008, we have seen a slide in real growth momentum in 2012, particularly in manufacturing. Actual GDP growth may now be running below the official numbers, we believe, although not to a large extent. Business is going through the difficult part of the business cycle – scrappy cash flow, rising receivables, poor investment appetite, and high levels of inventories. Also worrying is that sentiment has deteriorated, both offshore and on. This is not a country for old ideas – China.s new leadership will need to think anew about how to run this economy next year and beyond. Today, in addition to presenting our forecast changes, we introduce what we think will be the big themes for 2013.
