China: GDP supported on both external and domestic fronts - Nomura

Chinese Growth momentum remained resilient in Q2, supported by both external and domestic demand as real GDP growth was higher than expected at 6.9% y-o-y, unchanged from Q1 (Consensus and Nomura: 6.8%), explains the analysis team at Nomura.

Key Quotes

“On a seasonally adjusted quarter-on-quarter basis, real GDP growth rose to 1.7% in Q2 from 1.3% in Q1, but was lower than 1.9% in Q2 2016. June activity data surprised on the upside, pointing to resilient growth momentum.

  • Industrial production growth rose to 7.6% y-o-y from 6.5% in May (Consensus and Nomura: 6.5%), which was mainly driven by external demand, as industrial exports delivered grew by 11.7% y-o-y in June. By enterprises breakdown, output growth of export-oriented enterprises (such as foreign enterprises) also improved more quickly.
  • Fixed investment growth remained unchanged at 8.6% y-o-y ytd (Consensus: 8.5%; Nomura: 8.4%). By industry breakdown, property growth slowed but was offset by a pickup in infrastructure and manufacturing investment.
  • Retail sales growth rose to 11.0% y-o-y in June from 10.7%, against expectations of a dip (Consensus: 10.6%; Nomura: 10.5%). The improvement was mainly supported by an increase in auto sales.”

“Given stronger-than-expected GDP growth in Q2 and resilient June data, we are raising our growth forecast for Q3 to 6.8% y-o-y from 6.6%. As a result, our 2017 annual growth forecast rises to 6.8% from 6.7%. Despite the upward-revisions to our forecasts, our view of a gradual slowdown remains unchanged. As the property sector appears set to lose steam in H2 after rounds of policy tightening and efforts on financial deleveraging, domestic demand is likely to moderate. Also, uncertainties over external demand loom, given the appreciation of RMB in H1 and rising geopolitical risks.”

“On policy, we maintain our view of an expansionary fiscal policy stance and a neutral monetary policy stance throughout the rest of this year. With stronger-than-expected GDP growth in Q2, the need for policy easing has decreased. Also, we view still-resilient property market sentiment as the main constraint to monetary easing. We continue to expect no cut in the reserve requirement ratio and benchmark interest rate in H2 2017.”

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