China: Resilient growth in Q3 but September data showed fading momentum - Nomura

Research Team at Nomura, notes that the China’s real GDP growth remained at 6.7% y-o-y in Q3, unchanged from Q2 and in line with market expectations (Consensus: 6.7%; Nomura: 6.4%).

Key Quotes

“On a seasonally adjusted quarter-on-quarter basis, real GDP growth slowed slightly to 1.8% in Q3 from 1.9% in Q2.

September activity data were largely in line with market expectations, but showed tentative signs of momentum losing steam, in our view.

• Industrial production growth slowed to 6.1% y-o-y in September from 6.3% in August, against expectations of a modest rise (Consensus and Nomura: 6.4%).
• Retail sales growth edged up to 10.7% y-o-y in September from 10.6% in August, in line with consensus but much weaker than our forecast (Consensus: 10.7%; Nomura: 13.7%), despite an extremely low base last year; this points to weaker consumption. Indeed, excluding the price factor, real consumption growth slowed to 9.6% y-o-y from 10.2% in August.
• Fixed asset investment growth inched up to 8.2% y-o-y ytd from 8.1%, as the market expected (Consensus: 8.2%; Nomura: 8.4%). The rise was led by property investment growth (up 0.4 percentage points (pp) to 5.8% y-o-y ytd) and manufacturing investment growth (up 0.3pp to 3.1%).

Q3’s resilient growth appears to have been underpinned by post-flood reconstruction, the overheated property market and fading base effects from last year’s stock market bubble. We will now raise our 2016 real GDP growth forecast by 0.1pp to 6.6% from 6.5%, as Q3 growth was stronger than we expected.

That said, we see signs of momentum losing steam in September, notably in industrial production and retail sales growth. The boost from post-flood reconstruction has been fading and the recent crackdown on the overheated property market should start to pressure property investment and sales. We maintain our Q4 GDP growth forecast of 6.4% y-o-y.”