24 January 2013
Asia Chart Alert: China: Labour market tightens further in Q4
It reinforces our view that inflation will rise to over 4% y-o-y in H2.
Fig. 1: China’s labour demand/supply ratio and CPI inflation
· China's labour market data are generally not very timely nor reliable, but one measure that we find useful to track is the urban labour demand-to-supply ratio. It rose further to 1.08 in Q4 from 1.05 in Q3, reaching its highest level since the series began in 2002, suggesting that the labour market has turned structurally tight.
· More notably, this ratio rose to its record high, even though GDP growth only rebounded to 7.9% y-o-y in Q4 from 7.4% in Q3. It reinforces our view that China’s potential growth has slowed to 7.0-7.5%.
· It also reinforces our view that CPI inflation will likely surprise on the upside in 2013 to 3.5% y-o-y for the full year and 4.4% y-o-y in H2 (Consensus: 3.1% in 2013). As growth recovers and inflation rises, we believe that regulators will tighten controls on credit growth in H1 and hike interest rates twice in H2, which should lead growth to slow to 7.3% y-o-y in H2 from 8.1% in H1.
Sources: CEIC and Nomura Global Economics.
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