China: Can it maintain stable growth profile? - NAB

China’s economy grew by 6.8% yoy in the first quarter of 2018, unchanged from the rate recorded in Q3 and Q4 2017 as growth in the industrial sector accelerated (despite expectations of weaker conditions) while the services growth slowed, explains Gerard Burg, Senior Economist at NAB.

Key Quotes

“The comparatively strong result in Q1 highlights upside risk to our forecast for 2018 (6.5%), however the risk and uncertainty presented by US-China trade tensions (and the potential for a trade war) presents a downside risk as well.”

“China recorded a trade deficit in March for the first time in five years (excluding volatile Chinese new year periods). This reflected a considerable slowdown in exports. While trade tensions between China and the United States have risen rapidly over the past month, it is far too early to suggest that this has had an influence.”

“Following on from surprisingly strong growth in industrial output across January and February, China’s industrial production grew more modestly in March – increasing by 6.0% yoy.”

“Growth in China’s fixed asset investment slowed in March – to 7.2% yoy (from 7.9% across January and February).”

“Retail sales data was a little stronger in March, with an upturn in nominal sales and weaker inflation pushing real sales growth up to 8.6% yoy (from 7.9% in the first two months).”

“The new governor of the PBoC, Yi Gang, has stated that the bank will continue its prudent monetary policy and is well placed ahead of monetary policy normalisation in other major economies. We maintain an upward bias in terms of Chinese policy rates, however we expect that the PBoC will be cautious around rate increases, given the heavy debt burden of China’s corporate sector.”