Here’s a more positive read (for the world) on today’s China data from Capital Economics via the SMH blog:
- We won’t get the full breakdown of GDP by industry until tomorrow but we suspect that the slowdown remains heavily concentrated in the real estate sector, which grew a mere 2.0% y/y in Q2. Growth in the rest of the service sector is likely to have continued to see rapid growth.
- It makes sense to look at the September data, also released today, to gauge the recent momentum in the economy. The rebound in industrial production to 8.0% y/y last month suggests that August’s reading of 6.9%, partly the result of an unusually strong base for comparison, overstated the recent weakness in industry.
- Nonetheless, downwards pressure on the economy still remains going into Q4. Year-to-date growth in fixed asset investment fell from 16.5% to 16.1% last month, on the back of a further slowdown in property investment. Growth in new housing starts continued to cool in September.
- Q3 wage growth, also released today, still looks upbeat. Growth in median income continued to outpace nominal GDP growth, meaning that the average household is enjoying an increasing share of the dividends from growth. This appears to be supporting consumption. Retails sales growth edged down in nominal terms last month but this was due to lower inflation, growth continued to edge up in real terms.
- The upshot is that although growth has slowed, it reflects a welcome rebalancing away from excess investment in certain sectors of the economy and is not cause for significant concern. With policymakers now prioritising employment and economic rebalancing over growth, we don’t think they will feel the need to act aggressively to shore up the economy in response to today’s data.
Good news on incomes, bad news (for Australia) on stimulus!
