China: Strong economic growth numbers - Westpac

Elliot Clarke, Research Analyst at Westpac, explains that the March quarter followed December’s beat with a second consecutive upside surprise, annual real GDP growth of China accelerating from 6.8%yr to 6.9%yr.

Key Quotes

“Compared to authorities’ 2017 annual growth target of “around 6.5%yr”, Q1 is certainly a strong start. As is often the case in Q1, household consumption was the prime contributor to growth. LNY is a key spending period for consumers; in contrast, investment spending typically gains greatest momentum mid-year.”

“Given the commodities-driven surge evident in producer prices over the past six months, it is hardly surprising that the implicit price deflator has risen rapidly from around zero at end-2015 to 4.9%yr.”

“Nominal GDP growth therefore currently stands at 11.8%yr, the strongest outcome since Q1 2012 (12.4%) – note though, at that time real GDP growth was 1.2ppts stronger at 8.1%yr.”

“By industry, the underlying strength for the Q1 2017 result came from robust gains for secondary and tertiary (or services) activity. Below we assess developments in these key sectors in nominal terms.”

“Having reached a low of just 0.9%yr in late-2015, growth in the secondary sector (manufacturing and construction) has accelerated rapidly over the past 15 months to a very strong 14.2%yr in March – a near six-year high.”

“The resurgent Chinese manufacturing sector has been a key contributor to this rebound, benefitting from an upturn in global trade as well as a clear improvement in domestic investment.”

“The acceleration in private fixed asset investment is inclusive of stronger residential construction activity, aided by improved employment prospects (evident in the official NBS PMIs) as well as households’ freer access to credit. More broadly though, investment by industrial sector remains mixed and the rate of growth in public investment still far surpasses that for private activity.”