- China's GDP growth in Q4 12 accelerated to 7.9% y/y from 7.4% y/y in Q3, confirming that the Chinese economy has bottomed out and started a moderate recovery. While the recovery is primarily driven by domestic demand, exports appear to have added to growth as well.
- The outlook for H1 13 remains relatively strong and we expect GDP growth to accelerate further in the coming quarters. However, H2 13 could prove more challenging as the impact from fiscal easing will start to wane and People's Bank of China could move towards a tightening bias. We maintain our above-consensus 8.6% GDP forecast for 2013. Details
GDP growth in Q4 12 accelerated slightly more than expected to 7.9% y/y (consensus: 7.8%, DB: 7.8%) from 7.4% y/y in the previous quarter. Seasonally adjusted GDP growth in Q4 12 eased slightly to 8.2% q/q AR from 8.7% q/q AR in Q3 12. The slight deceleration quarter-on-quarter in GDP growth is not entirely consistent with the development in industrial production and the manufacturing PMIs, which suggest growth accelerated in Q4 12. For 2012 as a whole GDP growth eased to 7.8% from 9.3% in 2011.
Growth in industrial production in December also accelerated a notch more than expected to 10.3% y/y (consensus: 10.2%, DB: 10.3% ) from 10.1% y/y in November. Seasonally adjusted industrial production according to our calculations increased 1.2% m/m after increasing 0.8% m/m in November. For Q4 12 as a whole industrial production expanded 2.5% q/q after increasing 1.9% q/q in Q3 2012. Hence, the industrial production data in line with the manufacturing PMIs suggest that growth accelerated in Q4 12 (see chart).
Retail sales in nominal terms was also slightly better than expected in December as it increased 15.2% y/y (consensus: 15.1%, DB 15.3%) after increasing 14.9% y/y in November. The acceleration in retail sales can largely be explained by the increase in inflation in December. However, the fixed asset investment (FAI) data disappointed slightly in December as it increased 20.6% y/y YTD (consensus: 20.7%, DB 20.7%). According to our calculations growth in FAI eased to18.8% y/y in December from 19% y/y in November. We are not overly concerned about the weak FAI data in December as they are always volatile at year-end. Solid growth in broader credit measures in December in our view suggests that investment demand remains relatively resilient.
Assessment & Outlook
Today’s data confirm that the Chinese economy has bottomed out and has started a moderate recovery. The recovery appears to be driven primarily by domestic demand albeit China’s exports also appear to be adding to growth again. The outlook for H1 13 remains relatively strong and we expect GDP growth to accelerate further to 8.4% y/y in Q1 13 and 8.7% y/y in Q2 13. For 2013 as a whole we also maintain our above-consensus 8.6% GDP forecast.
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