Make way for a new China

Global economies are struggling, but there are positive signs coming out of Europe and Asia, says Benjamin Tal, managing director and deputy chief economist at CIBC World Markets.

China hit its lowest point a year ago, but he adds it’s “started to improve [since then] and we’re now getting very clear signals from its electricity market, as well as from industrial production and imports.”

Read: China will lead Asian expansion: IIAC

As a result, China will likely achieve a soft landing after all, which will ease investor concerns. The country was able to expand due to cutting interest rates, lowering reserve requirements and through fiscal stimulus measures.

Tal says the efforts made weren’t as drastic as those made in 2008, but they were significant enough to turn things around.

“The key for China is not the next year or so,” he adds. “[In 2013], it will stabilize at approximately 8%. [What’s important is] the China of tomorrow is going to be very different. It won’t rise by 12%-to-13% every year as those days are over.”

Read: China to bounce back

From now on, he predicts it will be a more mature economy and says the country’s labour force will start falling come 2015. “There will more of a focus on the consumer [rather than] on exports and infrastructure spending.

“From an investment perspective, the most interesting story in China won’t be just growth and commodities, but also the fact that the consumer will be a much more significant force in the future,” says Tal.

Further, while we’re still seeing negative growth in the Eurozone—such as Germany’s economy shrinking in Q4 2012—markets aren’t too concerned about the Euro any longer.

Read: A failed Euro is a failed Europe: CFA

“People aren’t talking about the collapse of the Eurozone,” says Tal. “People are [still] talking about the recessionary Eurozone,” but a breakup isn’t stressing investors anymore.

CIBC’s working assumption is “the Eurozone will remain in recession since there’s no obvious trigger” that will help it solve its current problems. At the same time, Tal says it will survive despite volatility.

Read: Sharp contraction in the Eurozone economy

Yet, as elections take place in Italy and Germany, “any uncertainty about these elections and any civil unrest due to unemployment…will test the belief in the market.”

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