From Westpac today:
The Chinese economy grew at a rate below its potential in the first three quarters of 2015. The general impression left by the flow of data since the previous edition of the CRQ has been distinctly underwhelming. Aggregate demand moderated in the September quarter, following on from a weak first half of 2015. The principal sources of weakness remain building activity and heavy industry, with services consumption and infrastructure capex providing partial offsets. Exports, which had been a support for growth in 2014, are now contracting.
Growth in heavy industrial capacity and in mining investment have both slowed significantly in the year to date. Coal mining and ferrous metals smelting are among the weakest segments. Outlays on utilities capex have continued to grow at a healthy pace. Investment in transport infrastructure continues to run at a relatively high level. Public sector capex has stabilized in 2015 to date having experienced steep declines last year, but overall the support for demand from this quarter has been extremely modest.
Real estate construction activity remains weak, while from the point of view of sales turnover the housing market may be at an important inflection point. Dwelling price gains appear to be fading before an aggregate spill-over from the early respondents to policy easing to the smaller, less wealthy, non-coastal cities has been achieved. This earlier than anticipated levelling out in the sales rebound will delay any recovery in building activity until deep into next year.
The heavy industrial sector continues to struggle. The proportion of industrial firms making losses remains historically high; the demand for basic inputs consumed by construction has deteriorated; as a result excess capacity is looking increasingly pronounced in some sub-sectors; and producer prices continue to decline, as they have done since early 2012.
China’s exports have fallen in recent times, with the deterioration evident across the G3, in intra–Asian trade and in shipments to extra-regional emerging markets.
Demand for imported raw materials has been reasonable (albeit volatile) in volume terms, but the overall import bill has declined due to steep falls in metals, energy and certain food prices.
An unexpected shift in exchange rate policy sparked global comment in the quarter just concluded, while financial reforms have come thick and fast in the year to date, with more than half an eye on the RMB’s bid to join the IMF’s SDR basket at the forthcoming review.
Commodity prices exhibited considerable softness during the first half of 2015, following on from the inglorious collapse of 2014. The September quarter saw stability emerge in some markets, but at the time of writing a new downtrend seems to be emerging. Lower prices have been driven largely by the increase in supply, although as noted above and throughout the CRQ, the growth in demand has, in the main, been considerably lower than the norms established in the 2000s.
The global supply trend has been exemplified by Australia’s bulk commodity export volumes, which have continued to increase despite substantially lower prices. Even so, as the period of time that commodity prices spend around their current levels extends, the more pressure will be brought to bear on those mines, in Australia, China and elsewhere that are operating in the upper quartile of their respective industry cost curves.
Full chartfest here.
