China: GDP too good to be true? – ING

Iris Pang, economist at ING, notes that the China's GDP growth stood at 6.4% year-on-year in 1Q, the same as in 4Q, which was a surprise to the market as the consensus forecast was 6.2% YoY.

Key Quotes

“The official statement claims that consumption was the main economic engine, contributing more than 65% of the growth, which is just as expected. However, the contribution to GDP has fallen from 79% in 4Q.”

“Retail sales grew faster in 1Q, at 8.7% YoY. And while that's up from 8.2% in 4Q, it is lower than our forecast of 8.9%.”

“Investment growth was 6.3% YoY year-to-date, better than 6.1% in February.”

“Industrial production jumped to 8.5% YoY in March from 5.7% YoY in February. The jump was exceptional, driven by both infrastructure projects and 5G production.”

“Overall, we revise our GDP growth forecast in 2019 from 6.3% to 6.5%, which is the upper bound of the government target. On a quarterly basis, the revised growth rates are 6.4%, 6.5% and 6.6% for 2Q, 3Q and 4Q, respectively.”

“We previously forecast four RRR cuts in 2019. The first cut was implemented in January, and we expected three more at the beginning of each quarter. But after today's strong GDP report, further cuts appear to be more distant.”