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Global Ou utlook – 25 November 2015 2
China’s grow wth to slo ow furthe er in 201 6 and 20 017
Arje en van Dijkhuizen Sen nior Economist Tel:: +31 20 628 8052 2 arje en.van.dijkhuizen@ @nl.abnamro.com m
2015: China co oncerns have e caused global turbuleence Whiile hard land n ding fears have h eased, risks remain We expect Chin na’s import picture to im mprove in 22016 Slow wdown to re emain gradu ual: growth falls to 6.5% % in 2016 an nd 6% in 201 17 Stilll, China’s on ngoing transition will come with occcasional hiccups
2015: China C spark ks turbulenc ce, but economic slowd down remain ns gradual Although h China has ca aused global turbulence this year, y our base sscenario of an gradual econo omic slowdow wn has held up.. Economic gro owth slowed fro om 7.7% in 20113 to 7.3% in 2014 2 and aroun nd 7% in 20 015, close to th he official targe et and our forec cast. After a weeak Q1 (1.3% qoq), q economicc growth came c in at 1.8% % qoq in Q2 an nd Q3. Annual GDP growth sllowed margina ally to 6.9% yoyy in Q3, while it was reporte ed at exact 7% % in the first two o quarters. Thiss caused a rev vival of the debate concerin ng the extent to o which China’s s GDP figures are reliable. Seeveral alternative indicators publishe ed by various in nstitutions point to figures of 4-5%, 4 but mostt of these have e a strong focuss on activity data d related to industry, where China’s weak kness is conceentrated. While we cannot neglect official o GDP da ata, we monitorr many indicato ors and use Blooomberg’s mon nthly GDP estimate es as an alterna ative growth tra acker. This indicator averagedd 6.6% for the first ten month hs of 2015, so omewhat (but n not far) below the official figurres.
China’s slow wdown remains gradual in n 2015
… although in nvestment co ooled sharply in early 2015 5
% yoy
% yoy
13
3 30 2 25
11
2 20 9
1 15 1 10
7
5 5 08
09
10
11
Real GDP G growth (officcial) Source: S Bloomberg g
12
13
14
15
Bloom mberg GDP estimate
11
12
1 13
Industrial prroduction
14
Fixed investmennt
15 Retail sales s
Sou urce: Thomson Re euters Datastream m
Divergence betwe een industry y and service es is wideniing The shiftt of China’s gro owth model, aw way from industry and investm ment towards services s and consump ption, is a partl y natural phen nomenon (rising g wealth levelss will spur consumption) that will w take yea ars to play out ffully. Services have been the largest sector since 2012, with a share of almost 50% 5 of total vallue added in 20 015. Services are a holding up better than ind dustry, although h we expe ect the growth ccontribution of financial servic ces to fall in thee first half of 20 016. Industry and a construc ction cooled in Q3, to 6.0% yo oy (Q2: 6.1%), while servicess accelerated to o 8.4% yoy (Q2 2: 8.3%). Monthly M activityy indicators also o confirm this picture. p Industrrial production has gradually cooled, reaching r a posst-financial crisiis low of 5.6% yoy in Octoberr. Growth of fixed investment dropped sharply in earrly 2015, reflectting overcapac city in the indusstrial and real estate e sectors, and uently slowed g gradually to 10..2% yoy in Octo ober. By contraast, growth of retail r sales initially subsequ slowed in early 2015, b but recovered in the second half h of the yearr. This shows th hat the sharp on of the stock market in June e/July had a lim mited effect on consumer confidence and correctio spending g, as only a sm mall portion of households h invest in equities while stock ma arkets have stabilised. This diverge ence is also illu ustrated by the forward-lookinng PMIs.