China: Q3 GDP growth likely slowed to 4.4% y/y – Standard Chartered

The manufacturing PMI edged up to 49.8 in September, while average reading stayed below 50 in Q3. Net exports likely remained a key growth contributor in Q3; real activity growth may have slowed. We lower our Q3 GDP growth forecast to 4.4% y/y (4.9% prior) due to subdued domestic demand. We raise our Q4 GDP growth forecast to 4.8% y/y (4.4% prior) to reflect recent policy support steps, Standard Chartered’s analysts Hunter Chan and Shuang Ding note.

Prompt policy response following weak Q3 performance   

“China’s official manufacturing PMI edged up to 49.8 in September from 49.1 in August, exceeding market expectations, as production activity recovered on improved new orders. Meanwhile, the average manufacturing PMI fell 0.4pts to 49.4, staying below 50 for a sixth straight quarter. Industrial production (IP) may have accelerated due to seasonal factors, normalising from the weather impact.”

“Domestic demand weakened in September; the services PMI fell to 49.9 – below 50 for the first time since end-2023. The average services PMI for Q3 eased to 50, indicating a stalled performance, resulting in continued deflationary pressure. CPI inflation may have eased in September on slower growth in food prices and a decline in services and fuel prices. In addition, PPI deflation may have reached its deepest level in five months at 2.5% y/y in September.”

“The goods trade surplus likely widened in Q3, continuing to contribute to growth and partly offsetting the drag from China’s prolonged housing market downturn. Real GDP q/q growth likely stayed below 1% in Q3. The September Politburo meeting showed a more growth-supportive policy stance and the People’s Bank of China (PBoC) hinted at more dovish monetary policy. We maintain our 2024 GDP growth forecast at 4.8%, with risk to the upside if outsized fiscal measures are announced. The government may issue additional bonds to meet its budgeted fiscal spending, and expand the use of special bonds for destocking housing inventory and mitigating debt risks.”