The recent stabilisation of China activity data resulted in a better-than-expected GDP growth result for the June quarter. The economy grew 2.0% over the quarter, up from 1.4% q/q in March. Annual growth came in at 7.5%, better than market expectations of 7.4% and much better than my clearly overly pessimistic forecast of 7.2%.
production came in at 9.2% for the year to June, up from 8.8% in May. Growth in Fixed Asset Investment increased in
year-to-date terms from 17.2% in May to 17.3% in June. That’s on the back of an acceleration of
infrastructure and a recovery in manufacturing investment offsetting slowing
real estate investment. Infrastructure
spending is likely to gather further momentum as the Government continues to fast-track
Stronger external demand and the recent
weakness in the exchange rate assisted stronger net exports while the recent
series of policy “fine-tuning” measures including fiscal stimulus and the targeted
easing in financial conditions supported domestic demand. It’s no coincidence that growth in the money
supply (M2) and new loans were stronger than expected in June.
The trajectory of the quarterly improvement
and the factors behind it suggest continued solid growth into the next quarter
at least. At this point we think annual growth
will continue at the current pace in the second half of the year with annual
average calendar growth likely to come in either on or not far off the official
target of 7.5%. Residential property
remains the key growth risk but as I’ve said before there is no shortage of
measures the Government can adopt to stem that decline.