China labor market barely hurt by GDP dip

According to Nomura, job vacancies to applicants ratio fell to 1.05 in Q2 from 1.08 in Q1, but remained above the breakeven point of 1.0 for the seventh consecutive quarter.

"This suggests that unemployment is not a problem despite GDP growth dropping to 7.6% in Q2."

"The tight labour market is indicative of GDP growth that is not far below its potential. However, we still expect policy easing to push up Q4 GDP growth by more than 1 percentage point from Q2, which would widen the output gap and drive up inflation. This supports our forecast of CPI inflation picking up from 2.2% y-o-y in June to 3.1% in Q4 and 4.2% in 2013," Nomura said.

"Our inflation outlook is an important reason why we do not expect any more interest rate cuts this year, and why we have penciled in 50bp-worth of hikes in H2 2013. It is also part of the reason why, contrary to the consensus forecast, we expect GDP growth to be lower in 2013 than in 2012, at 7.9% and 8.2%, respectively," Nomura added.