China: September performance beats expectations

Q3 GDP growth eased to 4.6% y/y from 4.7% in Q2; Q3 q/q growth accelerated to 0.9% from 0.5% prior. Industrial production (IP) and retail sales growth jumped in September, beating low market expectations. We expect GDP growth to bounce further in Q4 on China’s recently introduced stimulus package. The better-than-expected Q3 outcome poses upside risk to our annual growth forecast of 4.8%, Standard Chartered’s economists Hunter Chan and Shuang Ding note.

Policy measures likely to boost Q4 momentum

“September activity data surprised the market on the upside. In particular, IP and retail sales growth bounced to 5.4% y/y and 3.2% y/y, exceeding low market consensus estimates of 4.6% and 2.5%, respectively. Manufacturing activity likely normalised from typhoon disruptions. In addition, the consumer goods trade-in campaign lifted car and household appliance sales. Services production index growth rose to a seven-month high of 5.1% y/y in September from 4.6% in August.”

“Seasonally adjusted GDP growth accelerated to 0.9% q/q in Q3 from Q2’s revised growth of 0.5% (0.7% prior). Household demand improved. We estimate that the 3Y CAGR for real consumption expenditure per capita recovered to above 5% y/y in Q3. The drag from real estate investment contraction was offset by still-robust manufacturing investment growth. In addition, the net goods trade surplus widened by about USD 6bn from Q2 levels to USD 258bn in Q3.”

“A sizeable set of monetary, fiscal and housing measures was introduced to stabilise growth and expectations after the end-September Politburo meeting, opening the door to more policy support. We expect further policy rate and reserve requirement ratio (RRR) cuts in Q4. Moreover, we think the fiscal impulse will turn positive for the rest of this year by broadening the use of local special bond proceeds towards unused land and unsold home purchases, and a possible increase in the government debt quota. We expect GDP growth to rebound to 4.8% y/y in Q4 and maintain our annual growth forecast at 4.8%, with risks to the upside on better-than-expected Q3 growth.”

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