Below trend growth to continue
According to Chinese National Accounts released today, the Chinese economy grew 1.6% in the March quarter, which is a 7.7% increase on the same period last year. This result is softer than expected and casts some doubt over expectations for a robust recovery in the Chinese economy...
According to Chinese National Accounts released today, the Chinese economy grew 1.6% in the March quarter, which is a 7.7% increase on the same period last year. This result is softer than expected and casts some doubt over expectations for a robust recovery in the Chinese economy in the first half of the year. Official data show that growth over the year was driven by final consumption (contributing 4.3ppts to growth), followed by investment (2.3 ppts). Net exports made its first meaningful contribution in three quarters. Revised q-o-q growth rates suggest the economy’s growth momentum weakened noticeably in the start of the year after showing signs of stabilising mid-to-late last year; q-o-q in the December quarter was left unchanged at 2%. This softer than expected outcome for growth sees our average growth forecast for 2013 brought down to slightly below 8%, from 8.2% previously. On a more positive note, inflationary pressures have so far been kept within acceptable levels, meaning that authorities may have more scope to further stimulate the economy in the second half of the year if necessary. We have pushed out our expectations for monetary policy slightly with a hike in interest rates now unlikely to occur until early next year. Note that all figures in this brief may change slightly once all revisions to the data are available.
Evidence of a significant recovery continues to be elusive. Partial indicators have consistently surprised on the downside compared to market expectations, highlighting the slack that remains in private demand despite government efforts to jump start the economy last year. Softness in the partial data suggests to us that risks have become much more heavily skewed to the downside, although solid additions to new credit in the March quarter, along with some healthy forward indicators, still suggest a pick up in economic activity is still on the cards. In addition to that, authorities may be less comfortable with a growth rate that is so close to the official target (7.5%), and may prompt them to ramp up stimulus measures. However, comments accompanying the data release suggest that they are relatively happy with the “stable” outcome for the quarter, as well as the improved balance in growth towards consumption. Moreover, how they manage to balance stimulus with risks from local government debts, inflation pressures and asset bubbles remains to be seen.
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