GDP growth muted in China, though retail sales shine

Fresh data out of Beijing on Monday showed GDP growth slowing slightly in the People’s Republic, with second-quarter growth put at 6.7%, compared to the 6.8% seen in the first quarter.

It was still in line with market expectations as polled by Reuters, however, and was of little surprise to markets given the impact of China’s trade tussle with the US and its crackdown on dodgy credit would not have any real impact until the second half of the year.

Growth jumped to 1.8% quarter-on-quarter in the second quarter, from 1.4% in the first, and above the consensus of 1.6%.

“We had expected growth of at least 1.5% quarter-on-quarter, highlighting upside risks, namely because on-quarter growth has been weak in the last three quarters, so a further weak print would have meant the year-on-year rate had to be pulled down,” said Pantheon Macroeconomics chief Asia economist Freya Beamish.

“In the event, the bounce in the on-quarter data was larger than we expected, given the activity data, official rhetoric, and the switch away from tight monetary policy recently.”

Fixed asset investment growth, meanwhile, was at a record low of 6.0% for the first half of 2018, and industrial output for June was in line with the slowest growth rate in more than two years, also at 6.0%.

The slower growth across the board showed the conundrum faced by officials, according to analysts, with the country needing to keep monetary policy tight in a bid to encourage deleveraging, while ensuring they were also loose enough to underpin growth.

Market watchers also pointed to China’s ongoing tit-for-tat trade spat with the US as becoming a drag on growth, leading to ongoing easing in monetary policy in the medium term.

“The headline was due a sharp slowdown, with underlying data painting a weaker picture. It seems to have overshot in June, though, so we expect a modest rebound in July,” Freya Beamish said of the industrial output figure.

On the retail sales front, growth picked up to 9.0% year-on-year in June from 8.5% in May, above the consensus of 8.8%.

In real terms, growth in June was 7.0%, up from 6.8% in May.

“The authorities also publish levels data, which at the moment paint a starkly weaker picture,” Beamish noted.

“In reality, growth likely is lower than the headline rate, but higher than would be suggested from the calculation based on the levels.”

The levels data also suggested that quarterly growth had picked up in the second quarter compared with the first, with Beamish saying the implied upturn in private consumption growth made sense as the quarterly rise in the CPI slowed sharply in the second quarter.

“Going forward, income growth faces headwinds, and the tumble in equities will have damaged confidence.

“On the bright side, credit conditions for households could soon cease tightening.

“On balance, we expect retail sales growth to continue ebbing this year.”