Chinese growth moderates futher
However, if you look to the detail, the economic activity has decelerated sharply in China. The sequential growth (QoQ) fell to 7.5% from 11.7% in the previous quarter. It is the lowest recorded since 2008 Q4.
The main reasons of this sharp decrease in the rhythm of growth are the moderation in investment and in external trade surplus. In the urban areas, total investment rose only by 24.7% YoY in Q2 after +32.5% in the first quarter of this year.
In the same time, the purchasing power in China is negatively impacted by the rise in inflation (+6.4% YoY in June). Even if income growth is robust in China, this gives fewer margins to manoeuvre for households. Consumption expenditures per capita only rose by 7.1% YoY in real terms in urban areas (more than ¾ of total consumption).
Data published this week underlines that the economic activity is still in a moderation phase. Urban investments rose by 27 % in June after +34% in May. Exports growth is down again, to 17.9% from 19.4% in April. Real retail sales grew by 11.3% YoY (stable) but imports are down. Only, industrial production was on the bright side (+15% after +13% in April and May).
We do not see any change in the Chinese’s growth pattern. Investments and exports remain crucial for China. With the global slowdown and a tightening monetary policy, the moderation is warranted and will continue in the short term. Consumer could give some speed but the consumption’s share in total GDP is too small and real consumption growth too slow for enabling China to grow at more than 8% on an annual basis.