China: Q2 GDP growth sustained at 6.9%yr - Westpac

Elliot Clarke, Research Analyst at Westpac, notes that in Q2, China’s annual GDP growth was sustained at 6.9%yr, marking a third consecutive upside surprise.

Key Quotes

“Versus authorities’ 2017 annual growth target of “around 6.5%yr”, the Q1 and Q2 results are certainly a strong start. Coupled with the reining in of housing market exuberance and success in managing foreign capital outflows, it will allow authorities to take a passive role through the remainder of 2017.”

“Consumption remains the primary support for growth in year-to-date terms, 4.4ppts. However, investment’s contribution jumped to 2.3ppts in Q2 as funds raised in Q1 were put to work. Net exports also contributed to growth at the margin, 0.3ppts – unchanged from Q1.”

“In nominal terms, annual GDP growth eased back to 11.1%yr in Q2 as the deflator eased; but other than Q1’s 11.8%yr, that is still the strongest nominal outcome since Q1 2012 (12.4%) – however, back then real GDP growth was 1.2ppts stronger at 8.1%yr.”

“At 4.2%yr, the implicit price deflator has softened modestly after Q1’s surge. Importantly for consumers, upstream price pressures related to commodities have not passed to CPI inflation which remains well below target at 1.5%yr.”

“Having reached a low of just 0.9%yr in late-2015, nominal growth in the secondary sector (manufacturing and construction) accelerated rapidly over the 15 months to March to a very strong 14.2%yr – a near six-year high. In the three months to June, this momentum was largely sustained, 12.7%yr.”

“The resurgent Chinese manufacturing sector has been a key contributor to the rebound in activity, benefitting from an upturn in global trade and improved domestic conditions. Manufacturers have consequently added to capacity.”

“That said, growth in fixed asset investment has primarily been supported over the past year by transport infrastructure and real estate activity.”

“It remains the case that investment growth is much stronger in the public sector, with credit availability and economic uncertainty headwinds for private firms.”

“Finally in the services sector, growth has remained strong over the past three months, 11.4%yr. For the most part, this momentum should be sustained through 2017 and into 2018. However, as we have recently highlighted, the employment series from the PMI’s suggest downside risks are building for the consumer.”