© Reuters. FILE PHOTO: Individuals stroll in Lujiazui monetary district throughout sundown in Pudong, Shanghai, China July 13, 2021. REUTERS/Aly Music
(Reuters) – China’s economic system grew on the slowest tempo in a 12 months within the third quarter, damage by energy shortages, provide bottlenecks and sporadic COVID-19 outbreaks and elevating warmth on policymakers amid rising jitters over the property sector.
Knowledge launched on Monday confirmed gross home product (GDP) grew 4.9% in July-September from a 12 months earlier, the weakest tempo because the third quarter of 2020 and slowing from 7.9% within the second quarter.
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KEY POINTS
* Q3 GDP +4.9% y/y (f’solid +5.2%, Q2 +7.9%)
* Q3 GDP +0.2% q/q s/adj (f’solid +0.5%, Q2 +1.2% revised)
* September industrial output +3.1% y/y (f’solid +4.5%, Aug +5.3%)
* September retail gross sales +4.4% y/y (f’solid +3.3%, Aug +2.5%)
* Jan-Sept fastened asset funding +7.3% y/y (f’solid +7.9%, Jan-Aug +8.9%)
MARKET REACTION
Inventory markets confirmed little response to the broadly weaker China information, which had largely been anticipated. [.SS]
COMMENTARY:
SELENA LING, CHIEF ECONOMIST, OCBC BANK, SINGAPORE
“Headwinds are on the manufacturing facet, particularly with the present energy crunch, growing regulatory scrutiny and in addition the draw back dangers to the property market.
“2022 development is prone to sluggish additional, nearer to a low 5% deal with… it is again to a home demand story (and) retail gross sales is a vivid spot. The chance of an imminent RRR minimize has diminished post-PBOC convention and the total MLF rollover final week.”
IRIS PANG, CHIEF ECONOMIST, GREATER CHINA, HONG KONG
“It is inside my expectations, however the route is sort of all down.
“Retail gross sales figures present there may be nonetheless big demand for jewelry, which makes me assume that individuals are not prepared to purchase properties and are looking for options.
“Car gross sales are in contraction – this additionally displays that the economic system isn’t actually strong, if individuals do not need to purchase big-ticket gadgets. One other factor that I normally use to gauge the common shopper is clothes, and clothes is underneath contraction … and this makes me assume the common shopper is now saving greater than spending.
“Many of the (unfavourable) elements are policy-driven… the economic system is having a variety of ache factors and these ache factors should not going away quickly as a result of insurance policies are right here to remain, and subsequently it can proceed into 2022 — except worldwide borders totally reopen, that can give a brand new engine for all economies.”
ZHIWEI ZHANG, CHIEF ECONOMIST, PINPOINT ASSET MANAGEMENT, HONG KONG
“Q3 information confirmed additional indicators that the danger of stagflation is rising. GDP development year-on-year dropped beneath 5%. The quarter-on-quarter development dropped to 0.2%. The QoQ development is on the slowest stage apart from Q1 final 12 months when COVID broke out.
“But the unemployment charge declined, which is puzzling. This means the federal government might not really feel the urgency to launch stimulus and enhance development. The PBoC press convention final week additionally despatched alerts indicating that the financial coverage stance won’t change considerably. With out a significant coverage change, development in This fall would doubtless sluggish additional.”
KEN CHEUNG, CHIEF ASIAN FX STRATEGIST, MIZUHO BANK, HONG KONG
“On the financial coverage entrance, the PBOC downplayed the easing bias and is extra prone to implement focused easing measures to exchange the broad RRR minimize in This fall. But, the growing draw back threat for China development in This fall ought to nonetheless dent sentiment and we count on the CNY to fall again to six.50 at year-end.”
LOUIS KUIJS, HEAD OF ASIA ECONOMICS, OXFORD ECONOMICS, HONG KONG
“We predict the electrical energy shortages and manufacturing cuts will develop into much less of an issue later in This fall. In keeping with our expectation, senior policymakers have began to emphasize development and we count on them to start out calling for the pursuit of local weather targets on a extra measured timeline.
“However, whereas we do not count on Evergrande’s issues to set off a Lehman second, we expect the pending actual property downturn will proceed to weigh considerably on development within the coming months, whereas lingering COVID warning ought to proceed to result in be a drag on consumption. In consequence, we forecast solely 3.6% y/y GDP development in This fall.
“In response to the ugly development numbers we count on within the coming months, we expect policymakers will take extra steps to shore up development, together with guaranteeing ample liquidity within the interbank market, accelerating infrastructure growth and stress-free some points of general credit score and actual property insurance policies.”
BACKGROUND:
* China’s economic system has rebounded from the pandemic however the restoration is dropping steam, weighed by faltering manufacturing facility exercise, persistently smooth consumption and a slowing property sector.
* Indicators of additional slowing within the economic system put strain on the central financial institution to ease coverage, however analysts mentioned considerations over debt and property bubble dangers might delay any significant steps.
* World worries a couple of potential spillover of credit score threat from China’s property sector into the broader economic system have intensified as main developer China Evergrande Group wrestles with greater than $300 billion of debt.
* Chinese language Premier Li Keqiang has mentioned China has ample instruments to deal with financial challenges regardless of slowing development, and the federal government is assured of attaining full-year growth targets.
* China’s economic system is “doing nicely”, however faces challenges equivalent to default dangers for sure corporations as a result of “mismanagement”, the Individuals’s Financial institution of China Governor Yi Gang mentioned on Sunday.
* The nation’s export development surprisingly accelerated in September as nonetheless strong international demand offset among the pressures on the economic system.
* Economists count on China’s GDP to develop 8.2% this 12 months. That is slower than an 8.6% rise forecast in a July ballot, however would nonetheless be the best annual development in a decade. The economic system expanded 2.3% in pandemic-hit 2020.
* China has set an annual GDP development goal at above 6% this 12 months, beneath analysts’ expectations, giving policymakers extra room to deal with uncertainties.
