China rebounds, but domestic demand boost needed
Although Chinese economic growth in Q3 was stronger than expected, exports are set to decline and the country’s zero-Covid policy could weaken domestic activity.
Authors
China’s economy rebounded strongly in the third quarter to recover all of output lost during Covid-19 lockdowns earlier this year.
Output expanded by a seasonally-adjusted 3.9% in the three months to 30 September, meaning that the annual rate of GDP growth accelerated from 0.4% in the second quarter to 3.9% in the third quarter. The result was better than had been expected by analysts.
The consensus forecast was for growth of 3.5% q/q and 3.4% y/y respectively. And if anything, a soft set of September PMIs, coupled with the unusual delay of the national accounts during the week of the ruling Chinese Communist Party’s Congress, had raised suspicions that growth would be weaker than generally expected.
September activity data, which were published alongside the full third quarter national accounts, showed that industrial production unexpectedly accelerated last month on the back of better-than-expected export data. Growth in industrial production picked up to 6.3% y/y, from 4.2% y/y in August.
However, it seems unlikely that the economy can continue to rely on this driver of growth for much longer. After all, surveyed new export orders have resumed their downward trend and global demand for manufactured goods is likely to weaken significantly in the months ahead as high inflation and rising interest rates choke off demand.
Accordingly, the onus is now on domestic demand to drive future growth. We have been arguing for some time that the domestic economy will start to benefit from a cyclical improvement from late-Q3 onwards. It is also promising that recent data have brought tentative signs of stabilisation in the real estate sector after additional targeted policy.
However, the Party Congress did not reveal any major additional support for housing, or indeed the broader economy. And with consumers still hesitant in the face of possible lockdowns to control outbreaks of Covid-19 we continue to expect a fairly shallow recovery. Our forecast is for GDP growth of 3.3% this year with a pickup to 5% in 2023.
To learn more about Schroder All China Equity Opportunities Fund.
Important Information:
This document is issued by Schroder Investment Management Australia Limited (ABN 22 000 443 274, AFSL 226473) (Schroders). It is intended solely for wholesale clients (as defined under the Corporations Act 2001 (Cth)) and is not suitable for distribution to retail clients. This document does not contain and should not be taken as containing any financial product advice or financial product recommendations. This document does not take into consideration any recipient’s objectives, financial situation or needs. Before making any decision relating to a Schroders fund, you should obtain and read a copy of the product disclosure statement available at www.schroders.com.au or other relevant disclosure document for that fund and consider the appropriateness of the fund to your objectives, financial situation and needs. You should also refer to the target market determination for the fund at www.schroders.com.au. All investments carry risk, and the repayment of capital and performance in any of the funds named in this document are not guaranteed by Schroders or any company in the Schroders Group. The material contained in this document is not intended to provide, and should not be relied on for accounting, legal or tax advice. Schroders does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this document. To the maximum extent permitted by law, Schroders, every company in the Schroders plc group, and their respective directors, officers, employees, consultants and agents exclude all liability (however arising) for any direct or indirect loss or damage that may be suffered by the recipient or any other person in connection with this document. Opinions, estimates and projections contained in this document reflect the opinions of the authors as at the date of this document and are subject to change without notice. “Forward-looking” information, such as forecasts or projections, are not guarantees of any future performance and there is no assurance that any forecast or projection will be realised. Past performance is not a reliable indicator of future performance. All references to securities, sectors, regions and/or countries are made for illustrative purposes only and are not to be construed as recommendations to buy, sell or hold. Telephone calls and other electronic communications with Schroders representatives may be recorded.
Authors
Topics