China was front and centre this week – Westpac

Elliot Clarke, Research Analyst at Westpac, notes that China was front and centre this week as its GDP came in right on the market’s expectation of 6.7%yr.

Key Quotes

“More to the point, the detail was consistent with the intent of authorities: for improved consumer incomes and wealth to beget stronger consumption.”

“In terms of assessing the sustainability of growth, two points are worth noting. First, that the contribution from consumption held up in Q2 (instead of slowing after lunar new year holidays as it typically does) indicates the gain in Q2 was outsized, likely aided by buoyant confidence. Amid tariff concerns, and given the employment pulse has softened, this does not seem sustainable. Second, what is likely to endure is entrenched weakness in investment.”

“Clearly evident in the investment detail at June is the shock that has come from tighter credit standards and loan availability necessary to reset the system and push capital to the ‘industries of tomorrow’.”

“We therefore remain comfortable calling for weaker growth in the second half, and a full year outcome below the 6.5%yr target of authorities – our best guess, 6.3%.”

“One additional point on housing. In recent months, there has been a distinct acceleration in price gains across the nation. This is however unlikely to require a further tightening of standards as: (1) the price growth is skewed towards tier 2 and 3, where it is desired; and (2) construction activity is broad based. Housing is likely to therefore remain a source of strength for China’s economy in coming months, although the pace of growth will probably also ease.”