China: Economic growth decelerates in Q3 on lackluster domestic demand
October 21, 2014
GDP grew 7.3% over the same period last year in Q3, which marked a slight deterioration over the 7.5% expansion tallied in Q2. The print represented the weakest growth rate since Q1 2009 and was in line with FocusEconomics Consensus Forecast panelists’ projection.
Although the National Bureau of Statistics does not provide a breakdown of GDP by expenditure, additional data suggest that domestic demand remains weak, as both private consumption and investment moderated in Q3. Conversely, the external sector picked up strongly in the same period. Growth in nominal retail sales decelerated from 12.3% in Q2 to 11.9% in Q3. In addition, urban fixed-asset investment, which includes capital and construction investment, expanded an accumulated 16.1% in nominal terms in the first three quarters of this year, which was down from the accumulated 17.3% increase recorded in the first half of this year.
On the external side of the economy, nominal merchandise exports accelerated to a 13.0% expansion in Q3 (Q2: +5.0% year-on-year), while imports decelerated further to a 1.1% increase (Q2: +1.4% yoy), suggesting that the external sector fared better in the three months up to September than in the previous quarter. The weak import reading reinforces the idea that domestic demand is faltering.
A quarter-on-quarter analysis corroborates the slight deceleration suggested by the annual figures as GDP rose a seasonally-adjusted 1.9% in Q3, which was just below the 2.0% expansion recorded in Q2.
Moderating domestic demand is putting downward pressure on overall economic growth. Against this backdrop, Chinese authorities are expected to continue easing monetary policy in order to keep economic growth around the 7.5% target for 2014. These measures are likely to include further lowering of the interbank interest rates, the injection of liquidity into the financial markets, and the implementation of supportive polices in the property sector. As Hua Changchun, economist at Nomura, points out:
“The government has clearly stepped up its policy easing after very weak August data released on 13 September. The September data, however, suggest that these efforts have only succeeded in stabilising growth and that more policy stimulus is needed to lift GDP growth in Q4. The reduced efficacy of policy easing may be related to the powerful headwinds coming from the property market correction, the severe overcapacity in many upstream industries and an overleveraged corporate sector. We continue to expect 50bp cuts of the bank reserve requirement ratio each quarter from Q4 2014 to Q4 2015.”