1. China Q3 GDP slightly beats forecast, output and investment weaker

China Q3 GDP slightly beats forecast, output and investment weaker

China's government has fixed a growth target of around 7.0 percent for 2015 but that seemed increasingly at risk after a raft of weak data over the summer.

By: | Published: October 19, 2015 8:34 AM
china gdp 2015 q3

China’s economic growth eased to 6.9 percent in the third quarter from a year earlier, beating expectations but still the slowest since the global financial crisis. (Reuters)

China’s economic growth eased to 6.9 percent in the third quarter from a year earlier, beating expectations but still the slowest since the global financial crisis, putting pressure on policymakers to roll out more support measures as fears of a sharper slowdown spook investors.

Analysts polled by Reuters had predicted growth in gross domestic product (GDP) for the world’s second-largest economy would grow by 6.8 percent, compared with 7 percent in the prior quarter.

Quarter-on-quarter growth was 1.8 percent, the National Bureau of Statistics said at a news conference on Monday.

The market had expected GDP growth to come in at 1.7 percent on a quarterly basis, compared to a revised reading of 1.8 percent the prior quarter.

KEY POINTS
Q3 GDP +6.9 pct y/y (f’cast +6.8 pct, prev +7.0 pct)
Q3 GDP +1.8 pct q/q (f’cast +1.7 pct, prev 1.8 pct)
Sept industrial output +5.7 pct (f’cast +6.0 pct)
Sept retail sales +10.9 pct (f’cast +10.8 pct)
Jan-Sept fixed asset investment +10.3 pct (f’cast +10.8 pct)
Jan-Sept property investment +2.6 pct (Jan-Aug +3.5)

COMMENTARY:
TIM CONDON, HEAD OF RESEARCH ASIA, ING, SINGAPORE
“I think it is. (When asked if third-quarter growth was likely to be the lowest of the year)

“It looks like in the third quarter stronger consumption was able to offset weaker investments. We need to continue to see that. I have a worry that the investment looks like it is still slowing.

“I’m looking at the housing. My sense is that the housing sector remains weak. It will continue to slow.

“They have stimulus in place – infrastructure spending. That seems to be working. That’s the good news. I think the monetary data that came out last week suggested they don’t really need a lot more monetary stimulus.

“They will cut the RRR, but I think the policy interest rate cuts are more questionable. I am forecasting another policy interest rate cut this quarter, but I am going to review the rate cut forecast.”

LOUIS KUIJS, ECONOMIST, OXFORD ECONOMICS
“Growth falls in Q3 but sharp slowdown avoided. Continued downward pressures from real estate and exports caused GDP growth to drop to 6.9 percent in Q3. But robust consumption and infrastructure prevented a sharper slowdown, although concerns about the data will persist.

“Despite policy easing already undertaken, we think overall growth will soften more into 2016, with the demand trends broadly as in 2015. In such a setting we expect more incremental monetary and fiscal measures.

“In Q3 the property slump and export weakness contained industrial sales and profit margins and lifted spare capacity, particularly in heavy industry. As a result, manufacturing FAI momentum remained weak. Infrastructure FAI held up pace, reflecting its key role as policy lever. Nonetheless, overall FAI growth remained depressed in Q3 and industrial production growth fell further, especially in heavy industry.

“Consumption continued to function as the key cushion, preventing a sharper overall slowdown. Urban labour demand growth has slowed down. But, as the demand-supply situation continues to be favourable to workers, wage growth remains robust, supporting consumption. Solid consumption supports light industry and, especially services.

Indeed, service sector GDP growth continued to diverge from industrial GDP growth in Q3, even though the contribution of the financial sector declined significantly.”

“We expect the investment and consumption momentum trends noted above to broadly continue into 2016, with real estate remaining a drag on growth and consumption relatively robust. The acceleration of macro policy easing in Q3 – visible in stronger credit growth – should dampen the slowdown in GDP growth in Q4.

“But we expect consumption growth to ease into 2016 on the back of slowing wage growth. Overall, we now expect GDP growth of 6.9 percent in 2015 and 6.3 percent in 2016.”

“Risks remain substantial. Internationally, the key ones are monetary and exchange rate upheaval and weaker global trade growth. In China itself, the risk of an even sharper real estate downturn and a material slowdown in infrastructure have eased. However, the risk of a spill-over of the weakness in industry onto consumption is rising.

Such spill-over would take place via channels such as the labour market and confidence.”

NIE WEN, ANALYST, HWABAO TRUST, SHANGHAI
“Third-quarter GDP is higher than expected and it may be due to better-than-expected performance from the service sector. Economic growth will hover around this low level as traditional industries are slowing fast. We expect full year GDP in 2015 to slow to 6.9 percent and 6.5 percent in 2016.

“More stimulus measures will be rolled out to ensure that the economy is growing steadily enough to embrace further structural changes.

“Liquidity is sufficient and the 10-year treasury bond yield has fallen below 3 percent. We expect 1-2 more RRR cuts this year to balance out possible capital outflows if the U.S. increases benchmark rates this year, but no interest rate cut.”

ZHANG YIPING, ECONOMIST, CHINA MERCHANT SECURITIES, SHENZHEN
“The sluggish real estate investment is an important factor for the low GDP and now it will certainly raise more concerns on this industry. I think the government will boost the infrastructure industry to offset the impact of the weak real estate investment.

“The government came up with lots of stimulus but they were not implemented well and thus didn’t come to effect. If the policies helping the economy can be implemented thoroughly, I expect GDP will rebound in the fourth quarter and manage to remain at 7 percent for the whole year.”

ZHOU HAO, SENIOR ECONOMIST AT COMMERZBANK IN SINGAPORE
“Markets had expected to see either 6.8 or 6.9, but the overall downturn pressure on Chinese economy is still huge. And economic growth will slow further, and may dip to below 7 percent for 2015.”

“Property investment failed to have a dramatic recovery while the retail sales were the only highlight.”

“The government will probably lower the full-year growth target at its policy meeting at the end of this month.”

“The figure will not necessarily force the government to take out large-scale fiscal stimulus. I am expecting to see one interest rate cut and one to two reductions in RRR in the fourth quarter.”

OLIVER BARRON, CHINA POLICY RESEARCHER, NSBO, BEIJING
“The GDP beat is surprising, given that the monthly FAI and industrial production figures slowed considerably, and much faster than expected.

“The data would suggest that retail sales is holding up the data and there are other areas that the government is factoring in consumption and services data that are not picked up in the monthly figures.

“I’m quite worried that real estate FAI fell 3.1 percent despite the improvement in funding. Mortgages rose 90 percent year on year last month, home sales are still strong. The fact that real estate investment is weak will hinder Q4 economic recovery.

“Nominal GDP slowed to 6.6 percent from 6.9 percent in the first half, consistent with the slowdown in monthly figures and persistent deflation.

“Restructuring is apparent in the data as the services sector grew by 11.6 percent in nominal terms vs. just 5.4 percent for primary industry and 1.2 percent for secondary.”

LI HUIYONG, ECONOMIST, SHENWAN HONGYUAN SECURITIES, SHANGHAI
“The manufacturing industry might cause most concern as it is a pillar of China’s economy.

“The central bank is very likely to cut the interest rate and reserve ratio to help the economy, maybe also reduce taxes. Some short-term stimulation is also in need, such as simplification of the stock market system to boost more medium and small enterprises.”

“The GDP figure accords with the current situation basically, with weak data on export and import released earlier, indicating that the manufacturing industry is going through a hard time. We see China’s economy under downward pressure but relatively stable between 2012 and 2017, which is also a transformation period of China.”

MARKET REACTION
Most Asian shares markets pared mild early losses after the data while China’s stock indexes  turned positive and the Australian dollar rose a quarter of a U.S. cent.

BACKGROUND
– China’s government has fixed a growth target of around 7.0 percent for 2015 but that seemed increasingly at risk after a raft of weak data over the summer. Beijing’s surprise currency devaluation on Aug. 11 and a 40 percent plunge in the country’s stock markets also added to fears of shocks to the world’s second-largest economy.

– Even if the 7.0 percent target is attained it would mark the slowest growth in a quarter of a century as activity is weighed down by weak exports, factory overcapacity, a soft property market, high debt levels, a government anti-corruption campaign and slowing investment. The economy grew 7.3 percent in 2014.

– Chinese leaders have been trying to reassure global markets that Beijing is able to manage the world’s second-largest economy after the shock devaluation in the yuan and  summer stock market crash sparked fears of an economic hard landing.

– Some market watchers believe real growth is already much weaker than official data suggest.

– Economists widely expected the government and central bank to unveil more stimulus measures to avert the risk of a sharper slowdown.

– The central bank has already cut interest rates five times since November, and reduced the amount of cash that banks must hold as reserves to spur activity, though some analysts say such moves have not been as effective as in the past when the economy was more tightly controlled and debt levels were much lower.

– Other support measures have included increased government spending on infrastructure and the easing of curbs on the ailing property sector, which have succeeded in reviving weak home sales and prices but have not yet reversed a sharp decline in new construction which is weighing on demand for materials from cement to steel.

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