China: Q3 GDP growth edged lower - Westpac

In Q3, China’s annual GDP growth edged lower to 6.8%yr as expected following three consecutive upside surprises over the nine months to June 2017, notes Elliot Clarke, Research Analyst at Westpac.

Key Quotes

 “At least to September, 2017 has proven to be a very successful year for the authorities. Not only has growth remained above their target of “around 6.5%yr” without intervention, but housing markets across the nation have also been brought into line, as has foreign investment. Following October’s National Congress, authorities will be able to continue focusing on incremental reform of the economy and markets without any concerns over growth.”

“In nominal terms, annual GDP growth ticked higher to 11.2%yr in Q3 as the deflator firmed modestly to 4.4%yr. Higher commodity prices continue to work their way through the economy, but have little relevance for consumer prices. CPI inflation is currently running at just 1.6%yr, weighed down by food prices.”

“Other than Q1’s 11.8%yr, the Q3 nominal GDP result is still the strongest outcome since Q1 2012 (12.4%) – although back then, real GDP growth was 1.3ppts stronger at 8.1%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. This momentum has largely been sustained since, with growth of 12.7%yr reported for the past six months.”

“The 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.”

“From the fixed asset investment data, it looks as though this upturn in investment is well past its peak, annual growth having slowed over the past six months. This is not only true of manufacturing, but also residential, transport and utility investment. In part, this is because the private sector are holding back on investment. And, given resilient GDP growth, there is no cause for another wave of public projects to stoke demand.”

“Finally, growth has remained strong over the past year in the services sector, averaging 11.5%yr nominal. This momentum should be sustained through 2017 and 2018. However, the below-average employment growth reported by the PMIs points to some downside risk on this front.”