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China: GDP accelerates in Q2 on policy easing

July 16, 2014

GDP grew 7.5% over the same period last year in Q2, which marked a slight improvement over the 7.4% expansion tallied in Q1. Q1’s increase had represented the weakest growth rate since Q3 2012. The slight acceleration tallied in Q2 overshot the 7.4% increase that FocusEconomics Consensus Forecast panelists had expected.

Although the National Bureau of Statistics does not provide a breakdown of GDP by expenditure, additional data suggest that private consumption picked up in Q2, while investment moderated in the same period. Growth in nominal sales picked up from 12.0% in Q1 to a 12.3% in Q2. Conversely, urban fixed-asset investment, which includes capital and construction investment, expanded an accumulated 17.3% in nominal terms in the first half of this year, which was down from the accumulated 17.6% increase recorded in the first quarter. In addition, nominal merchandise exports rebounded to a 5.0% expansion in Q2 (Q1: -3.4% year-on-year), while imports decelerated to a 1.4% increase (Q1: +1.7% yoy), suggesting that the external sector fared better in the three months up to June than in the previous quarter.

A quarter-on-quarter analysis corroborates the acceleration suggested by the annual figures as GDP rose a seasonally-adjusted 2.0% in Q2, which was above the 1.5% expansion recorded in Q1.

GDP’s healthy recovery in Q2 was mainly attributable to the impact authorities’ targeted pro-growth measures had, which included a “mini” fiscal stimulus and selective cuts in the reserve requirement ratio. That said, analysts warn that there are still downside risks and that Chinese authorities will have to deliver further policy easing measures in the coming months to achieve the 7.5% growth target for 2014 as Liu Li-Gang, chief economist for Greater China at ANZ points out:

The commodity inventory data suggest that the downside risks still remain, especially in a sluggish property sector. Alongside with the weak property sales and investment, the unsold housing stock has picked up. We believe that further monetary policy easing across the board will be needed to reduce the downside risks facing the economy and help the Chinese authorities to deliver the 7.5% growth target. Specifically, extending the reserve requirement ratio (RRR) cut to the rest of the banking system is needed in early Q3 in order for Premier Li to deliver the growth target.

At China’s annual National People’s Congress that was held in early March, the government set a growth target of 7.5% for 2014. That said, Chinese officials signaled that the government is willing to tolerate a slightly lower growth rate for this year. FocusEconomics Consensus Forecast panelists expect GDP to expand 7.4% in 2014, which is unchanged from last month’s estimate. In 2015, the panel sees economic growth coming in slightly lower at 7.3%.


Author: Ricard Torné, Lead Economist

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China GDP Chart


China GDP Q2 2014

Note: Year-on-year changes of GDP in %
Source: National Bureau of Statistics of China (NBS) and FocusEconomics calculations.


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