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This is the measure of an economy. But sometimes the gross domestic product (GDP) does not tell you much.
A look at China's second-quarter GDP, released on Monday, may suggest that things are holding up pretty well in the world's second largest economy. The increase of 6.7pc compared to last year – just below the previous period – indicates a China that has withstood the first skirmishes of a trade war, has continued its transition to an economy consumer-driven and does not suffer too much from a state-run campaign to stem debt.
Fair enough, as long as it is. But quarterly data do not indicate that this activity slowed significantly in June, the last month of the reporting period. (This is not a comment if China's figures are cooked, though there are skeptics who point to comments that WikiLeaks attributed to Premier Li Keqiang when he was a provincial chief that GDP is "artificial" and "for reference only."
Figures released on the same day as GDP showed that fixed badet investments by the government and state-owned enterprises grew at the pace the slowest since at least 2004 last month, and industrial production has cooled.Two other figures were mixed: retail sales were good, while a report released last Friday indicated that new loans granted by the parallel banking system had the most down.
Similarly, the quarterly title gives the impression of debt does not damage the economy in general and that the correction of the trajectory is justified. In real As a result, China is changing monetary policy to avoid a softening of June's softness.
The imposition of tariffs by US President Donald Trump (and China's retaliation) gives more impetus to the task. The People's Bank of China has reduced the amount of money that banks are required to hold as reserves, but with very specific conditions. The PBOC opposed interest rates in June instead of following the rise of the Federal Reserve, as some economists had anticipated. Government spending resumed in June, focused on protecting the environment, science and technology. These steps do not constitute a wholesale opening of the faucet; they show that the team of President Xi Jinping is risk-sensitive and ready to take other measures, preferably without compromising debt reduction. Soft landings are difficult.
Too much concentration on GDP would miss all that. The same is true for Western economies. The quarterly GDP gives you an idea of what three months, overall, look like a three month aggregate from a year ago or a quarter. It is not very enlightening on the direction of the economy in real time or its speed.
There is also a faction within the economy that challenges GDP as a measure of economic well-being. Lorenzo Fioramonti, author of "The World After GDP", is an economist who says that it's time to do something different. Guest on the Bloomberg Benchmark podcast last year, Mr Fioramonti sees the example of the island of Nauru in the South Pacific. Rapid mining has inflated GDP and attracted many banks willing to lend to Nauru. Damage to the environment was destroying Nauru's future simultaneously, but GDP showed that everything was fine.
There is no easy answer. As long as governments publish the GDP, unilaterally eliminating the quarterly tonnage would be stupid. We should also be cautious when we base an economic evaluation on these three letters. This is particularly the case of China, because what happens there is so critical to the global economy.
The image of China may seem placid on the surface. It is also easy to think that the country has understood everything, especially in contrast with the apparent chaos in the West since the election of Brexit and Mr. Trump. Under the bland projection of China, there is a truly compelling economic dynamic that is playing out.
Who knows? Maybe China can perfectly make the link between deleveraging and growth. Do not rely on GDP to demonstrate it (Bloomberg)
Indo Business
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