- GDP growth in Q1 13 surprisingly eased to 7.7% y/y from 7.9% y/y and puts into question the strength of the Chinese recovery. Industrial production was also substantially weaker than expected in March while retail sales improved slightly but overall has been weak in Q1 13 on the back of the government's frugality and anti-corruption campaign.
- While today's weak data certainly questions the strength of the recovery in China, the manufacturing PMIs and leading indicators so far do not suggest that China has entered a renewed phase of deceleration in GDP growth. We still expect GDP growth to improve in Q2 13 and China to be in a moderate recovery in 2013, albeit we might have to change that view if the manufacturing PMIs start to weaken in the coming months. We will have to revise our 8.4% forecast for GDP growth in 2013 lower.
GDP growth in Q1 surprisingly eased to 7.7% y/y (Cons: 8.0% y/y, DB: 8.0% y/y) from 7.9% y/y in Q4 12. Seasonally adjusted GDP in Q1 13 increased 1.6% q/q after increasing 2.0% q/q in Q4 12. On a quarter-on-quarter basis this was the lowest GDP growth since Q1 12 and on the surface it suggests that the Chinese economy again has started to deteriorate.
The weakness in the Q1 GDP data was also evident in the industrial production. Growth in industrial production in Marche eased markedly to just 8.9% y/y (Cons: 10.1%, DB 10.2% y/y). Seasonally adjusted growth in industrial production according to our calculations eased to 2.4% q/q in Q1 13 from 3.8% q/q in Q4 12. It should be underscored that the slowdown in industrial production is not consistent with the development in China’s manufacturing PMIs that on average improved in Q1 13 relative to Q4 12 (see chart). In addition, leading indicators like real money supply growth that tend to lead industrial production have so far not suggested that China has entered a new phase of deceleration in industrial production (see chart).
Fixed asset investments (FAI) also disappointed slightly easing to 20.9% y/y year-to-date (Cons: 21.3%, DB 21.4%). Nonetheless, the overall investment picture still looks relatively resilient as also suggested by the relatively strong credit growth. Retail sales in line with expectations accelerated to 12.6% y/y (Cons: 12.6%, DB 12.8%) from 12.3% y/y for January and February as a whole. Nonetheless, the overall picture for retail sales in Q1 is relatively weak as the government’s frugality and anti-corruption campaign appears to have weighed on private consumption in Q1 13.
Assessment And Outlook
Today’s disappointing data certainly put into question the strength of the Chinese recovery. As China does not release the demand component in the GDP data, it is rather difficult to reach a clear conclusion about the drivers behind the weakness in Q1 13. However, private consumption and inventory cuts appear to have weighed on activity, while exports and investment demands appear to have been relatively resilient.
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