From Macquarie Wealth Management comes a useful note on the Chinese economy, where growth is set to slow further in 2015 on the back of weakening fixed asset investment (FAI):
China’s NBS Friday announced another set of weak growth figures…
In terms of commodity-specific numbers, steel production fell 0.2% YoY… [A]pparent steel consumption looks to have been down 7-8% YoY in November, when record steel exports are taken into account. Meanwhile, thermal power generation fell 4.2% YoY – the 5th consecutive month of negative growth…
Industrial Production (IP) growth fell to 7.2% YoY in November from 7.7% YoY in October. Property sales growth failed to maintain its recovery, dropping to YoY -13.3% for primary residential market in November from -3.4% in October (Fig 1), and new starts contracted sharply by more than YoY 35% last month. The other indicators are at best described as resilient, with infrastructure FAI growing at YoY 16.6% and supporting a small tick-up in total FAI growth back to 14.9% from 14.4% in October, while retail sales came up slightly to 11.7% from 11.5%…
[W]hile FAI growth has been maintained this year mainly due to government-driven infrastructure projects, the fiscal reform seems to raise some uncertainties regarding local financial conditions and thus the outlook of local infrastructure projects next year; meanwhile, there are few signs yet that the property sector can take over the baton…
Chinese FAI growth is of course key to Australia’s fortunes, since it is the key driver of demand for iron ore and coking coal.
The strong lift in iron ore supplies, combined with sluggish (or falling) demand in China, remains a bad omen for Australia’s terms-of-trade,and will continue to weigh on Australia’s nominal GDP, and hence incomes and the Federal Budget (see next chart).
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
