JAKARTA - IHS Global Insight provides latest update on China’s economy. Followings are the key points:
Key Points :
- Industrial value-added output accelerated 0.3 percentage points (pp) to 6.3% expansion in August, due to slower contractions among miners.
- Given the improvement in industrial output was primarily in the mining sector, it is of little surprise that state-owned output also accelerated most.
- Fixed-asset investment growth was unchanged an 8.1%, although became more services oriented.
- Non-state investment growth remained depressed at 2.1% growth.
- The real-estate sector continued to lose momentum, primarily in indicators that will drag on construction activity.
- Retail sales accelerated due to faster automobile and fuel sales.
- Based effects and tax policy timing indicate the assistance from auto sales may lighten starting in the fourth quarter.
Outlook & Implications:
Current Chinese data point to more consumption and export oriented growth in the third quarter. Our estimates of real growth indicate that compared to the second quarter, industrial output has improved by less than 0.1 percentage points (pp), real retail sales by 0.5 pp, and real exports by 1.1 pp. On the other hand, real investment growth is down by nearly 4 pp.
Given consumption was already a dominant contributor to growth in the first half of 2016, these positives and negatives likely balance each other for now. This provides the Chinese government breathing room for the immediate future, indicating no imminent changes in stimulus measures.
Underlying details highlight that gains in retail sales and industrial output are not broad based and perhaps fleeting, pointing to slower Q4 growth. Industrial output improved mostly due to slower contractions in mining, rather than a real improvement in the much larger manufacturing sector. One notable exception is auto manufacturing, where base effects from tax policy changes in 2015 are a concern.
The same is true in retail sales - the improvement was primarily due to changes in prices of fuels, as well as tax-cuts that accelerated auto sales against a relatively low base in August 2015. While the mining sector may continue to improve as price trends aid their margins, this is far from a broad-based industrial rebound. Moreover, support from the auto sector may start to erode in the fourth quarter, when the consumer tax regime is comparable year on year.
Most critical, we still expect that the housing sector trends will continue to soften steadily for the next several quarters. This will present a larger drag than any of the positives in the most recent monthly data. Government policy is likely to remain stable through to the end of 2016, and become more supportive in the first quarter of 2017 as real estate data worsen sharply.
By Brian Jackson, China Economist, IHS Global Insight