The Chinese data released this morning was better than expected across the board and there were signs of stabilisation. Most importantly, the data released for June was stronger than expected across the board. The recent plunge in the Chinese stock market started in mid-June and so far at least there are no signs of any substantial negative spillover. That said, in our view it is too early to judge if there has been any - the July data will give a better idea. Importantly the June data showed continued recovery in the housing market, where recent monetary easing appears to have had a positive impact. We believe this is much more important for Chinese growth than the recent stock market turmoil.
Looking at the details, GDP growth in Q2 stayed unchanged at 7.0% y/y (cons: 6.8%, DBM: 6.8%). Seasonally adjusted GDP expanded 1.7% q/q after rising 1.4% q/q (revised up from 1.3% q/q) in Q1 and 1.5% q/q in Q4 last year.
Industrial production accelerated to 6.8% y/y (cons: 6.0% y/y) in June from 6.1% y/y in May. According to our calculations, industrial production (seasonally adjusted) increased 1.3% m/m in June after increasing 0.9% m/m and 0.3% m/m in May and April respectively. Hence, industrial production appears to be recovering but the recovery in the hard industrial production data is also stronger than suggested by the only modest improvement in the manufacturing PMIs in recent months (see chart below)
Growth in fixed asset investment (FAI) data was also stronger than expected with growth in FAI staying at 11.4% YTD, y/y (cons: 11.2% YTD, y/y) in June. According to our calculations, growth in FAI accelerated to 11.6% y/y in June from 9.9% y/y in May. Hence, the slowdown in investment demand appears to be easing. Importantly there are signs of improvement in the housing market. Growth in sales of new homes (measured in square metres) improved to 18.2% y/y in June from 16.4% y/y in May. However, growth in housing starts remained subdued at -16.2% y/y in June, but new home sales tends to lead housing starts (see charts below).
Finally, retail sales in June accelerated to 10.6% y/y (cons: 10.2% y/y) from 10.1% y/y in May.
Despite the recent turmoil in the stock market we still expect a moderate recovery in China in H2 15, not least driven by some improvement in the housing market. That said, we expect growth in GDP to drop below 7.0% y/y in Q3 due to a base impact from strong growth in Q3 last year. We maintain our forecast of 6.9% GDP growth for 2015 as a whole albeit there is now some upside risk to our forecast. Longer term, China remains on a path to a structural slowdown in GDP growth.
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