China 1Q GDP eliminated the possibility of a massive stimulus in the coming months

China’s 1Q GDP expanded by 7.4%, staying perfectly within the range of “about 7.5%” full year growth target that was set 2 months ago. The number buys more time for government leaders at least for the second quarter to keep reform measures back to the table, and lessen pro-growth policies.

If there are any reasons for holding back massive stimulus, one of them will be stabilizing labor market. Indicators of employment and incomes showed modest growth in the first quarter. China created 3.44 million new urban jobs in the first 3 months, 40,000 more than the previous year, according to Chinese statistics bureau today. One of the biggest hiring websites in China shows increasing jobs opportunity in private sectors and the pace has been accelerating in recent months. Labor market could be one of the primary concerns for Chinese leaders in near to long term. The current robust labor market eliminates the possibility of an aggressive policy response to the subdued GDP figure.

No drastic slowing down of the 1Q growth number is good enough for the policymakers show less worries on failing to reach 2014’s targeted growth. Li Keqiang hinted to the market that the large stimulus package has been ruled out.

However, Reserve Bank of New Zealand (RBNZ) is struggling to decide on whether to hike interest rate next week after they just raised key policy rate by 25 BPS to 2.75% in March. Inflation rose less than the previous consensus for the last three months of 2014, with annual inflation rising up to only 1.5%, as fewer contributions came from tradable inflation. The increases came from household related items, with new houses rising up by 1.2%, rentals up by 0.6% and property maintenance up by 1.2%. Headline numbers is much lower than RBNZ’s inflation target, however the main concerns for the central bank now are the rising of housing and construction related prices. In our point of view, we maintain the possibility that the chance for a further rate hike next week will be no less than 50%.

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