16 Apr 2015
China's weak data raises case for further easing - Nomura
FXStreet (Bali) - According to Nomura Economists, China's weak March data (published during Wednesday Asia) raises the case for further policy easing.
Key Quotes
"China’s real GDP growth eased to 7.0% y-o-y in Q1 from 7.3% in Q4 2014, in line with market expectations (Consensus: 7.0%; Nomura: 6.9%; Figure 1). On a quarter-onquarter basis, GDP growth slowed to 1.3% in Q1 from 1.5% in Q4. The continued downtrend in GDP growth illustrates how strong the headwinds facing the economy are and how weak growth momentum is."
"Strikingly, nominal GDP growth is even weaker than real growth, suggesting increasing deflationary pressures. In nominal terms, GDP growth slowed to 5.8% y-o-y from 7.7% in Q4, the lowest since Q1 2009. We estimate that the GDP deflator turned negative for the first time since the global financial crisis at -1.1% y-o-y in Q1 from 0.4% in Q4, which continues to point to deflationary pressure on the investment side. The FAI price index fell 1.0% y-o-y in Q1 after a decline of 0.1% in Q4."
"The silver lining is that the share of the tertiary sector (services) of GDP picked up further, indicating an improvement of the economic structure. Tertiary sector output grew 7.9% y-o-y in Q1 from 8.1% in 2014, outpacing 6.4% growth in the secondary sector (manufacturing and construction; Figure 2). Service sector output accounted for 51.6% of GDP in Q1, up 3.4 percentage points (pp) from 48.2% in 2014, in line with our view that the growth model is shifting from investment to consumption. Moreover, the acceleration in household income, with real growth rising to 8.1% y-o-y from 8.0% in 2014, should also help the rebalancing away from investment towards consumption.
Key Quotes
"China’s real GDP growth eased to 7.0% y-o-y in Q1 from 7.3% in Q4 2014, in line with market expectations (Consensus: 7.0%; Nomura: 6.9%; Figure 1). On a quarter-onquarter basis, GDP growth slowed to 1.3% in Q1 from 1.5% in Q4. The continued downtrend in GDP growth illustrates how strong the headwinds facing the economy are and how weak growth momentum is."
"Strikingly, nominal GDP growth is even weaker than real growth, suggesting increasing deflationary pressures. In nominal terms, GDP growth slowed to 5.8% y-o-y from 7.7% in Q4, the lowest since Q1 2009. We estimate that the GDP deflator turned negative for the first time since the global financial crisis at -1.1% y-o-y in Q1 from 0.4% in Q4, which continues to point to deflationary pressure on the investment side. The FAI price index fell 1.0% y-o-y in Q1 after a decline of 0.1% in Q4."
"The silver lining is that the share of the tertiary sector (services) of GDP picked up further, indicating an improvement of the economic structure. Tertiary sector output grew 7.9% y-o-y in Q1 from 8.1% in 2014, outpacing 6.4% growth in the secondary sector (manufacturing and construction; Figure 2). Service sector output accounted for 51.6% of GDP in Q1, up 3.4 percentage points (pp) from 48.2% in 2014, in line with our view that the growth model is shifting from investment to consumption. Moreover, the acceleration in household income, with real growth rising to 8.1% y-o-y from 8.0% in 2014, should also help the rebalancing away from investment towards consumption.