By Brian Jackson, China Economist, IHS Global Insight
Key Points:
- Chinese growth was better than expected in November, mostly due to stronger industrial output from utilities and retail sales from automobiles. Housing sector activity continued to decelerate gradually, in line with expectations.
- Chinese industrial production expanded at a faster pace of 6.2% in November, from 6.1% in September and October. Retail sales receipts rebounded to 10.8% growth, hitting an 11-month high.
- While fixed-asset investment growth was unchanged at 8.3% in November, China’s housing market growth slowed across all floor space indicators.
- Growth indicators through November point to unchanged GDP growth in the fourth quarter, but include a compositional shift away from services and construction and towards industrial output.
IHS Global Insight Views:
China’s economy is stronger than expected in the middle of the fourth quarter. Rather than a modest overall deceleration, current indicators signal steady growth relative to the third quarter, albeit with a stronger lead by industry amidst slowing services and construction output.
Substantial downside risks remain in the automotive and housing sectors. As noted consistently in prior months, the largest risks to growth in 2017 are expected downturns in the housing market and automobile sales.
The housing correction is expected due to fairly consistent cyclical dynamics in China’s housing market over the last decade. While the housing correction is already building momentum, it is expected to deepen significantly in the first quarter of 2017. Real estate services, whose volatility comes mostly from sales growth, contributed about 0.5 percentage points to 6.7% GDP growth in the first three quarters of 2016.
Separately, the automotive sales correction may be delayed due to last minute demand shifting to take advantage of consumption tax breaks before they expire at the end of 2016. China’s automotive sector currently accounts for about one percentage point of total industrial output growth of 6.0% year-to-date, and about two percentage points of retail sales growth of 10.4%, so even a modest deceleration in those components will have a meaningful and widespread impact on growth in 2017.