China: Signs of stabilisation in growth momentum – ABN AMRO

Arjen van Dijkhuizen, senior economist at ABN AMRO, explains that the China’s official GDP growth rate for Q4-18 came in at 6.4% yoy and while this was the slowest rate since the global financial crisis, it shows that at least in official growth terms, China’s economy is still on a gradual slowdown path.

Key Quotes

“Full-year annual growth dropped from 6.8% in 2017 to 6.6% in 2018, staying just above Beijing’s growth target of 6.5%. In quarterly terms, growth dropped to 1.5% qoq (Q3-18: 1.6%). That said, China’s industry showed serious signs of cooling in late 2018, reflected for instance in both manufacturing PMIs dropping below the neutral 50 mark and export and import growth turning negative.”

“Still, the latest hard data point to some early signs of stabilisation and came in generally better than expected. Industrial production growth rose back to 5.7% yoy in December (November 5.4%, consensus expectation: 5.3%). Retail sales growth edged up marginally to 8.2% yoy (November and consensus expectation: 8.1%). Fixed investment growth has rebounded over the past months supported by some fiscal stimulus gradually filtering through, but remained at 5.9% yoy in December.”

“Going forward, we expect more signs of stabilisation going forward (and the longer-term slowdown to remain gradual), as Beijing continues with piecemeal fiscal and monetary support measures, while the likelihood of an US-China trade deal has risen in our view. Still, in Q1 trade and some other data may prove quite volatile, given the annual shift in timing of the Lunar New Year break and possible distortions from previous frontloading of trade flows.”