China: GDP growth decelerated in Q3 but is close tohitting the low point
OCTOBER 18, 2012
GDP grew by 7.4% year-on-year in the third quarter
compared to 7.6% in Q2. (Chart1) Growth slowed for the seventh consecutive quarter. We have cut our
7.7% in 2012.
, GDP will increase by
.However, the September data beat expectations and reinforced our long-held view that
China will avoid a hard landing
. We expect GDP growth to accelerate slightly in Q4.
18th National Communist Party Congress
has been scheduled for
. Alarge share of the top decision making body will be replaced,
Jinping is expected tobecome General Secretary of the Communist Party and President, while
Keqiang willbecome Premier.
Uncertainty surrounding the leadership changeover
and the BoXilai scandal
has muted the government’s response to the economic slowdown
People’s Bank of China
has held its key interest rate at 6.0% percentsince the rate cut in early July
. Instead, the central bank is using reverse repurchaseagreements to inject liquidity into the money market.
We expect the PBoC to hold thekey interest rate steady for the remainder of 2012.
Purchasing managers’ indices (PMIs) have stopped worsening
but are still belowthe 50 level. The official PMI improved somewhat to 49.8 in September. The arguablymore reliable Markit/HSBC PMI also improved slightly. (Chart 2)
Price pressures are weak.
Headline inflation decelerated slightly to 1.9% in Septemberwhile food inflation decelerated to 2.5%. Core inflation printed at 1.7%. (Chart 3)
Inflation is expected to increase moderately
Exports provided an upside surprise in September
and increased by 9.9% in year-on-year terms.
Imports are still rising slowly, however.
Both industrial production and retail sales accelerated in September.
New bank lending was weak in September
at 623 bn yuan compared to more than700 in August.
However, weak bank lending was offset by growth in other forms of creditand
the money supply grew at the fastest rate since June 2011
. (Chart 6)
The housing market is still weak.
are falling in year-on-year terms butat a slower pace.
(Chart 7) Of 70 cities tracked, 31 saw price gains in September and 24saw falls. Real estate transactions have recovered since the bottom in April. (Chart 8)
(CNY) has started to appreciate against the USD again. (Chart 9)
SEB Economic Research+46 8 763 80 firstname.lastname@example.org
2011 2012 2013 2014
GDP* 9.2 7.7 8.0 8.2Inflation* 5.4 3.0 3.5 3.8 USD/CNY** 6.29 6.28 6.25 6.20
* Percentage change. ** End of period exchange rate.Source: MacroBond, National Bureau of Statistics of China, SEB.