Lower growth target confirms China’s slower economic trajectory

The National People’s Congress – the annual meeting of China’s parliament – commenced in early March. From an economic perspective, the key announcement was the lowered growth target – to ‘about 7%’ from ‘about 7.5%’ in 2014. Our forecasts remain unchanged – at 7.1% in 2015 and 6.9% in 2016 – with this view consistent with China’s new growth target and the willingness of authorities to accept the ‘new normal’ of lower growth.

China’s industrial sector eased considerably across the first two months of the year. Growth slowed to 6.8% yoy during the January-February period, down from 7.9% in December. This was the slowest rate of growth since February 2009. Anecdotal reports suggested that many large industrial firms closed earlier than normal ahead of the Chinese New Year holiday period.

Fixed asset investment was also comparatively weak in early 2015 – growing by 13.9% yoy over January-February, slowing from 14.8% yoy in December 2014. However, accelerating deflation in the corporate goods price index (given falling prices for key inputs) held real investment relatively stable.

Retail sales growth slowed in the first two months of 2015 – increasing by 10.7% yoy in January-February (down from 11.9% in December 2014). Sales have been consistently trending down since early 2012 – however this has also coincided with slowing retail price inflation, which has boosted real sales. Real retail sales growth remained around trend levels. While the headline result appears negative, a substantial fall in the value of fuel purchases contributed to the slower growth in spending – in part due to falling global oil prices.

For further analysis download the full report.

• China Economic Briefing – March 2015 (PDF, 130KB)