Chinese GDP Numbers See Some Slowdown

The world's second largest economy, China, saw slower than expected growth in the first quarter of CY13. As per data published by the National Bureau of Statistics of China, the economy grew by 7.7% in Q1CY13 compared to the 7.9% growth in Q4CY12. This is quite below the market’s expectations of GDP growth of 8%.

Another set of data reports that Chinese businesses invested less in fixed assets during the quarter. These investments were expected to grow by 21.3% on a Year-on-Year basis but in reality, went up by just 20.9% to USD 929.47 billion YoY. Lower investments would mean that the businesses are not expecting robust demand for their products, which may lead to weaker GDP numbers.

The Chinese industrial production data was also published yesterday (April 14, 2013). This shows that the economy’s value-added production output grew by 8.9% in March 2013 over that in the same period last year. The industrial output is widely off the expectation of more than 10% growth. The industrial production in the first 2 months of the calendar year grew by 9.9%.

Chinese government officials have cited that the new government is concentrating on improving the quality of economic growth.

The only figures that managed to meet expectations was the retail sales data, which grew by 12.6% YoY in March 2013. However, this too was a growth of only 1 basis point over expectation of a 12.5% rise, suggesting that consumers are cautious in spending.

Globally, the US economy is showing signs of recovery but at a slower clip. Data from Europe is inconsistent, and it is very difficult to comment on growth in the continent. The addition of China's slower growth figures may hurt the global recovery if there is no significant improvement. In fact, the worldwide capital markets have already started factoring in the subdued Chinese data, with most markets in Asia and Europe showing negative trades today.

How will China's slower growth impact the demand for major commodities? Well, the country’s crude oil demand has taken a beating, based on which crude oil prices have fallen. Besides China's iron ore exports were flat and copper shipments were also weak.

The GDP, industrial output, fixed asset investments and retail sales are all hinting at weakness in the economy. It should also be understood that China's 7.7% growth rate is not very low when compared to that of the other major countries but only looks disappointing when compared to its own average growth rate of over 10%.

Considering that the country is keeping lower interest rates to boost the growth rate, we expect no change in the monetary policy at the moment. The banking sector has also seen a robust credit demand mainly to the in the infrastructure sector. Chinese banks have extended new loans worth USD 171 billion to consumers in March 2013.

The high growth in credit, however, will take some time to show an impact on the economy. Economists are of opinion that the credit growth is not flowing into the real economy and one has to wait for this to happen and jobs to be created for the GDP to show expansion.

We are of opinion that China is still growing and still provides some support to the hope of a global recovery. As for the markets, one has to keep a watch on the production numbers going ahead.