26 Jan 2016
China: CNY under pressure after deflating GDP report - Rabobank
FXStreet (Delhi) – Michael Every, Head of Financial Markets at Rabobank, suggests that the recent release of China’s Q4 GDP proved a disappointment.
Key Quotes
“In y-o-y terms growth was below consensus at 6.8%, the lowest quarterly reading since Q1-09, the depths of the global financial crisis. That still meant Q4 y-o-y Year To Date (YTD) growth was 6.9% (i.e., conveniently in line with the government’s target of “around 7.0%”). However, it also meant that 2015 growth was the slowest in 25 years. Meanwhile, Q4 nominal GDP growth of 6.4% y-o-y was the lowest single quarter seen since Q1 2000, while for 2015 as a whole nominal GDP growth hit the lowest on modern record at 6.6%. That is a very serious problem for the Chinese economy, as we shall return to later.
Even that may be putting too positive a spin on things, although the lack of detailed Chinese GDP data complicates deeper analysis. In the last quarter the deflator was -0.4% if one subtracts real GDP growth of 6.8% from nominal GDP growth of 6.4%. One can immediately see that if the GDP deflator had been the same as the rate of inflation (i.e., positive 1.5%, not negative 0.4%), real GDP growth would have been 6.4% minus 1.5%, which would have been just 4.9% rather than 6.4% minus -0.4% (which added actually 0.4% to real GDP).
Of course, CPI and the deflator are not the same thing, but previously they were not as far apart as they have been since China’s deceleration began in 2014. Whether that is a statistical issue that only shows up under certain circumstances as some contend (though we did not see it in 2008-09), or something deliberate, it still points to the fact that China is not growing at the near-7.0% rate it professes to be. The clear down-trend in commodity markets despite ‘steady’ Chinese growth would arguably back that view.”
Key Quotes
“In y-o-y terms growth was below consensus at 6.8%, the lowest quarterly reading since Q1-09, the depths of the global financial crisis. That still meant Q4 y-o-y Year To Date (YTD) growth was 6.9% (i.e., conveniently in line with the government’s target of “around 7.0%”). However, it also meant that 2015 growth was the slowest in 25 years. Meanwhile, Q4 nominal GDP growth of 6.4% y-o-y was the lowest single quarter seen since Q1 2000, while for 2015 as a whole nominal GDP growth hit the lowest on modern record at 6.6%. That is a very serious problem for the Chinese economy, as we shall return to later.
Even that may be putting too positive a spin on things, although the lack of detailed Chinese GDP data complicates deeper analysis. In the last quarter the deflator was -0.4% if one subtracts real GDP growth of 6.8% from nominal GDP growth of 6.4%. One can immediately see that if the GDP deflator had been the same as the rate of inflation (i.e., positive 1.5%, not negative 0.4%), real GDP growth would have been 6.4% minus 1.5%, which would have been just 4.9% rather than 6.4% minus -0.4% (which added actually 0.4% to real GDP).
Of course, CPI and the deflator are not the same thing, but previously they were not as far apart as they have been since China’s deceleration began in 2014. Whether that is a statistical issue that only shows up under certain circumstances as some contend (though we did not see it in 2008-09), or something deliberate, it still points to the fact that China is not growing at the near-7.0% rate it professes to be. The clear down-trend in commodity markets despite ‘steady’ Chinese growth would arguably back that view.”