China: GDP growth slowed, again, in 4Q15 – ING

FXStreet (Delhi) – Tim Condon, Chief Economist at ING, suggests that they remain of the view that housing must turn around to stop the fall in GDP growth as the policy has targeted the inventory problem.

Key Quotes

“GDP growth hit a 7-year low of 6.8% YoY in 4Q15 (prior 6.9%). Sequential growth was 1.6% (prior 1.8%). Based on the reported year-to-date figures, the slowdown in agriculture growth (to 4.2% YoY from 4.4% in 3Q) and in services growth (to 8.0% from 8.6%) more than offset quicker manufacturing growth (to 6.0% from 5.8%). The data put full-year at 6.9% in line with the official “about 7%” target.

Based on the December activity data also released today, December was the weakest month in the fourth quarter. Industrial production growth slowed to 5.9% from 6.2%, putting full-year growth at 6.1%, the slowest on record. We already knew from the 2.8% contraction in USD-value exports that they were a drag on manufacturing. The 14.6% contraction in housing starts was a double whammy.

The 14.2% contraction in housing starts in 2014 was associated with a 3.9ppt slowdown in fixed asset investment growth (to 15.7%). In 2015 housing starts contracted by another 14.6% and FAI investment growth slowed by 5.7ppt (to 10.0%). We think sharper contraction in FAI growth in 2015 was due to the added drag from the adverse export shock.

We remain of the view that housing must turn around to stop the fall in GDP growth.

The slowdown in FAI wasn’t only due to real estate investment. Infrastructure investment growth slowed to 17.5% from 20.1% in 2014 and manufacturing investment growth slowed to 8.1% and 13.3%. We agree with National Bureau of Statistics Head Wang Baoan, who said financial market turbulence explained some of the weakness.

Economic rebalancing is an unintended by-product of the double whammy to manufacturing. Services accounted for 51% of GDP in 4Q15, up from 48% a year earlier, while manufacturing’s share dropped to 40% from 43%.

The weakening of growth momentum in December underscores that policy accommodation has yet to bear fruit. We reiterate our forecast of two 25bp PBOC policy interest rate cuts by mid-year and our 6.5% growth forecast for 2016 (Bloomberg consensus 6.5%).”

Tim Condon, Chief Economist at ING, suggests that they remain of the view that housing must turn around to stop the fall in GDP growth as the policy has targeted the inventory problem.

(Market News Provided by FXstreet)