The China GDP figures change little in terms of the choose-your-own-adventure thing happening with China. Yes, the 8.1 per cent growth for Q1 was lower than consensus forecasts of 8.3 or 8.4 per cent. But no, it’s not causing the bears to rejoice.
Witness this from Nomura strategist Zhiwei Zhang, who’d forecast a well-below-consensus 7.8 per cent:
However, our read of the higher frequency monthly data is that economic growth may have started to pick up late in the quarter (i.e., March). Industrial output growth rose to 11.6% y-o-y in March from an average of 11.4% in Jan-Feb; nominal fixed-asset investment growth eased only slightly to 20.9% y-o-y in Q1 from 21.0% in Jan-Feb; nominal retail sales growth picked up to 15.2% y-o-y from an average of 14.7% in Jan-Feb.
What brought this about? We saw that the trade balance returned to surplus in March, but exports were not strong enough to push away fears for global demand, or hopes for easing.
Another surprising piece of data released was loans, which came in much higher than expected. From Bloomberg:
Local-currency-denominated loans were 1.01 trillion yuan ($160.1 billion) in March, the People’s Bank of China said yesterday, the biggest surprise above forecasts in more than a year. M2, the broadest measure of money supply, grew 13.4 percent from a year earlier. China’s foreign-exchange reserves, the world’s largest, rose to a record $3.31 trillion as of March 31 after dropping for the first time in more than a decade in the fourth quarter.
Anyway, Zhiwei believes this indicates the worst may be over:
Our assessment is that China’s GDP growth has bottomed and that growth will start to pick up from this quarter. GDP is a rear-view-mirror statistic. Forward looking indicators, such as the OECD’s composite leading economic index for China and new loans (which surged to RMB 1.01trn in March) support our view. Policy easing, both fiscal and monetary, is underway, and we expect more to come, especially with CPI inflation likely to ease in the coming months.
So Zhiwei (one of the authors of the China 1-in-3 hard landing report) says the Nomura outlook may need to be revised upwards:
On the back of these data, we judge that our 2012 GDP growth forecast of 8.2% may be too low. We are currently reviewing this forecast.
Aside from the aggregate growth, GDP data also gives an opportunity for more entrail-reading of China’s long-promised but little-seen rebalancing.
AlsoSprachAnalyst argues that, contrary to what a National Bureau of Statistics official said on Friday, there is no evidence from the latest GDP figures that the rebalancing is under way:
Sheng Laiyun of the National Bureau of Statistics is quoted saying that Final Consumption Expenditure contributed to 6.2 ppt of growth, while investment contributed to 2.7 ppt, and exports made -0.8ppt of the contribution of the overall 8.1% growth for the first quarter of 2012.
ASA says this is not borne out by the fixed-asset investment and retail sales data (although we know they can be…messy to interpret):
The reason for the disconnect? He posits that it’s because the final consumption expenditure includes both household and government spending.