Chinese Monthly Update – October 2012

China’s economic growth decelerated for the seventh consecutive quarter. However, quarter on quarter growth came in stronger than expected and revisions to previous quarters suggest the near-term growth momentum has actually improved.

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  • National accounts for September confirmed that China’s economic growth decelerated for the seventh consecutive quarter. Real GDP growth eased to 7.4 per cent, in line with both our own forecasts and market expectations, and was the slowest pace in 3½ years. However, quarter on quarter growth came in stronger than expected and revisions to previous quarters suggest the near-term growth momentum has actually improved.
  • Partial economic indicators for September were generally better than market expectations. Year-ended growth in production, retail sales, fixed investment and exports all accelerated in the month. Total social financing picked up as well.
  • The PBoC has been quiet on the policy front, preferring to rely on open market operations to manage liquidity conditions. The improved economic data and disruptions from the political transition imply that potential for additional policy easing has diminished.
  • We have kept our forecast for China’s GDP growth at 7½ per cent in 2012 as we wait for signs of a more sustained recovery. Growth should start to pick up in 2013 as recent policy stimulus gains more traction. Although the odds of more monetary stimulus have shortened, we have maintained our forecast of one more 25bp cut to interest rates and a 50bp cut to reserve requirements this year.

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