Well here we go. Let the countdown begin. China’s fourth quarter GDP numbers come out on Friday. We reckon most of the run up in the All Ords to 4751 has been in anticipation of good news. If form holds, stocks will trade down once the news is in.
As for the news itself, well, is it really news? That is, does a GDP figure really tell you anything useful? As we mentioned last week, GDP is whatever government statisticians want it to be.
Granted, it has to bear some semblance to reality, or else it will be suspect. But otherwise…
For example, China’s positive November trade data from last week is receiving extra scrutiny. Analysts at Goldman Sachs and UBS say the 14.1% jump in exports – the biggest jump since March 2011 – didn’t ‘match goods movements through ports and imports by trading partners,’ according to Bloomberg.
Now just because one set of data doesn’t match another doesn’t mean anyone’s deliberately trying to deceive. GDP in a large economy is not an easy thing to measure to begin with. And it measures transactions more than something more fundamental. It’s a bit like measuring the health and quality of a meal by the number of calories in it, rather than by nutrition and composition of those calories.
But the data feast continues. Analysts surveyed by Bloomberg expect fourth quarter Chinese GDP to be 7.8%. That would be up from the three-year low of 7.4% in the third quarter. And really, what on earth could prompt an ‘analyst’ to estimate than an economy the size of China’s would grow by 7.8% instead of 7.4% or some other figure?
The answer is obvious. China’s GDP is a made up number, just like most GDP numbers. It’s also controlled by the State, to the extent that government spending is a large component of GDP (investment and consumption being other large factors). The Chinese economy has a history of hitting its targets. If it wants to hit 8% or so, it probably will.
This entire discussion will mean something to punters in resource shares. But what? As we said, the good news is already baked into the cake. Barring a big surprise in either direction, shares will probably shrug their shoulders and wait for something else to react to. What could that be?
for The Daily Reckoning Australia