China outlook

from RGE Monitor:

Prompted by aggressive government investment, Chinese growth has been improving from the near stall experienced at the end of 2008. When GDP statistics are released this week, Chinese growth is expected to have accelerated from the 6.1% y/y reported in Q1 2009. Manufacturing surveys indicate expansion, residential property shows signs of stabilization, fixed investment is surging and, prompted by incentives, consumption has held up. Despite this acceleration, which stems from Beijing’s aggressive policy response to the economic crisis, RGE still believes that China will grow well below trend in both 2009 and 2010, given the sluggishness of the global economy and the risks posed by China’s fiscal and monetary stimulus itself. RGE expects growth of only about 7.0% in 2009 and 7.7-8.0% in 2010. Moreover, China may have only limited ability to boost other countries’ economies.

IMF and Ukraine: Mutual Co-Operation on Bailout Conditions

• Ukraine’s economy contracted by nearly 20% in Q1 2009 despite IMF’s US$16.5 billion loan agreement made in November 2008. The deteriorating political climate in the country put the disbursement of this loan at risk. However subsequent macro-economic policy improvements put the agreement back on track.

• Given Ukraine’s economic progress and given that inflation has eased and trade deficit has narrowed, the IMF is expected to disburse the third tranche of US$3.3 billion in August 2009.

How to Fix the OTC Derivatives Market?

• July 14: The U.S. Justice Department is investigating the CDS market. In particular, „The antitrust division sent civil investigative notices in July to banks that own London-based Markit to determine if they have unfair access to price information.“ Meanwhile, members of Congress say that it is poised to pass a bill in 2009. (Bloomberg)
• Geithner’s testimony (July 10): „To force clearing of all derivatives would ban customized products and that might not be necessary.“ Credit-default swaps „provide an important economic function in helping companies and businesses across the country better hedge against their risk. Our responsibility is to make sure those benefits come with protections.“