Towards Financial Freedom
China: Cutting Our GDP Growth Forecasts
- Economic data for Aug released thus far suggested that the Chinese economy continued to moderate in the month. Although exports (+2.7% yoy) came in slightly higher than Jul's 1.0%, it remained weak by historical standards. Forward-looking indicators such as export orders also do not suggest an immediate recovery in foreign demand in the coming months.
- Domestically, the industrial production (+8.9% yoy) rose at the slowest pace in three years in Aug, implying continued downward trend in the country's output growth trajectory. Further to this, the slowing of urban fixed asset investment (FAI) YTD to 20.2% yoy (from 20.4% in Jul) points to challenges in China's fixed asset investment in the face of recent attempts to stimulate investment. Growth in the manufacturing FAI, for instance, dropped to 23.9% yoy in Aug from 24.9% in Jul, while investment in railway transportation continued to contract albeit at a slower pace of -23.9% yoy compared to -31.9% yoy in Jul.
- Another sign of weak domestic demand came from imports data which showed a contraction of 2.6% yoy in Aug, versus a +4.7% yoy increase in Jul and against consensus estimation of +3.5% yoy. Although nominal retail sales (+13.2% yoy) picked up slightly from Jul's 13.1%, it slowed to 12.1% yoy in real terms from 12.2% in the prior month.On the stimulus front, concerns about a strong rebound in the property prices may continue to keep the key policy rates on hold for now in our view. That said, further cuts of at least 150 bps in the required reserve ratio (RRR) are still expected in the rest of the year if market liquidity conditions worsened. We believe more targeted measures would be forthcoming to boost investment, exports, consumption, as well as the manufacturing and services sectors (including further tax reduction, export credit insurance, tax rebates etc.).
- Particularly, as most of China's recent GDP growth came from investment, the growth outlook is expected to improve in 4q12 following last week's announcement of approval of over 50 large investment projects in railway and other infrastructure by the NDRC. Nevertheless, the pick-up is likely to be gradual as some investment might not be immediate and could subject to financing constraints.
- Reflecting the sustained current downward trend of the Chinese real economy and challenges, we revise down our 3q12 and 4q12 GDP growth forecasts to 7.4% yoy (from 8.0% previously) and 8.3% yoy (from 8.6%), respectively. We now expect the economy to grow by 7.9% in 2012 (previously 8.1%) and 7.7% in 2013 (previously 7.9%).
Source: OSK
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