China: 2Q growth suffering from fading investment - Natixis

Alicia Garcia Herrero, Chief Economist at Natixis, suggests that in the light of recent macroeconomic releases, they forecast the Chinese economy to grow at 6.7% YoY in Q2 2017, from 6.9% last quarter.

Key Quotes

“China GDP surprised on the upside last quarter. The key driving force came from the industrial sectors but the momentum does not seem to be lasting long. Investment was the reason behind such rapid growth but it is now slowing down. The good thing is that trade and consumption are still holding up but not enough to fully offset the slowdown in investment.”

“The rebound in fixed asset investment (FAI) in early 2017 seems to be reversing. In the same vein, the manufacturing sector is slowing down too. Electricity generation is already on a downward trend. Indicators in property sales, development funding and land purchases have all pointed to a contracting real estate sector. Moreover, the decline in FAI is the most obvious for state owned enterprises (SOEs) and local government infrastructure projects.”

“However, not everything is negative. Trade data has improved, as shown by logistics and transportation data. Consumption is also quite robust although the aggregate numbers hide some worrisome trends, namely that growth is mainly driven by jewellery sales, indicating a weaker retail sector.”