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China: GDP Growth In Renewed Deceleration‏

ByDanske Markets
Published 07/15/2013, 06:57 AM
Updated 05/14/2017, 06:45 AM

GDP growth in Q2 13 eased to 7.5% y/y from 7.7% y/y in Q2, broadly in line with expectations. The data released for June last week and this morning on balance have been weaker than expected, suggesting that the Chinese economy has been losing momentum through June. There are signs that the recent weakness has mainly been driven by weaker investment demand, while retail sales suggest that private consumption continues to recover moderately after being hit by the government's frugality campaign in early 2013.

The weak credit data for June suggest investment demand could slow in the coming months. Particularly local government infrastructure investments and manufacturing investments look vulnerable. On the other hand, housing investments look more resilient as the demand-supply balance in the property market is now supported by a minimized supply of new homes. That said, it is still uncertain to what degree the liquidity crunch in the Chinese money market in June will turn into a credit crunch. Money market rates have close to normalised in July so credit growth could regain strength.

We expect GDP growth to slow further in H2 13 on the back of slower investment demand. Our GDP forecast for 2013 is now 7.4%, below the government's 7.5% target. In general the government will probably be reluctant to ease monetary policy although a cut in the reserve requirement is possible. Fiscal easing remains the government's preferred option.

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