March quarter China GDP growth of 7.4% was better than the 7.3% expected by the market but down from the 7.7% recorded for calendar 2013. Despite the better than expected GDP result the partial activity indicators were generally on the soft side, suggesting near term growth risks remain to the downside.
Industrial production came in at 8.8% for
the year to March, higher than the 8.6% recorded in the January-February period,
but a bigger bounce had been expected following the disruptions of the Lunar New
Year period. At 8.7% growth for the
quarter we would have expected GDP to be a tad weaker although the service
sector posted stronger than expected growth.
Fixed asset investment fell from 17.9% in
Jan-Feb to 17.6% in March with the decline most marked in the property
sector. We expect FAI will continue to
drift lower in the period ahead. Retail sales
growth was in line with expectations of 12.2% which is up from 11.8% in
Jan-Feb, but growth is still best described as sluggish.
I think risks to growth in the near-term
remain to the downside. That is largely
a domestic economy story. We continue to
look to exports to provide some impetus to industrial production and GDP growth
later in the year. Recent weak export growth
of -6.6% for the year to March has been distorted by inflated data last year. Adjusting for those distortions shows export growth
running closer to +7.0%. Furthermore the strongest (least weak?) components of
the recent manufacturing PMI surveys have been new export orders.
While the near-term growth risks remain to
the downside the better than expected March GDP out-turn along with continued strong
jobs growth suggests there is no need for significant stimulus. However, if growth does continue to look a
bit soft, we expect to see further announcements similar to the “mini-stimulus”
we saw two weeks ago. Low inflation and
last week’s sharp drop in M2 from 13.3% in February to a below target 12.1% in
March provides plenty of room to ease further in need.