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GDP (Q3), Activity & Spending (Sep.)

A stronger end to a weak quarter

  • An uptick in activity in September didn’t avert a slowdown last quarter. And policy support is unlikely to prevent cooling external demand and slowing construction from resulting in more weakness ahead.
  • GDP growth slowed from 6.2% y/y in Q2 to 6.0% last quarter (the Bloomberg median was 6.1% and our forecast was 6.1%). The preliminary breakdown shows that an acceleration in services activity was more than offset by a slowdown in industry. Admittedly, the China Activity Proxy (CAP) – our attempt at tracking economic activity without relying on official GDP figures – points to an uptick in growth in Q3. (See Chart 1.) But this may reflect a skew towards property construction that has defied the slowdown elsewhere.
  • The recent weakness in the monthly activity and spending indicators was partially reversed in September. Growth in industrial production jumped from 4.4% y/y in August to 5.8% last month (Bloomberg 4.9%, CE 4.8%). The breakdown shows that the pick-up in industrial output was primarily the result of a pronounced acceleration in output by private domestic firms. (See Chart 2.) Our own industrial output index, which is based on output volumes of industrial products, also saw a rebound. (See Chart 3.) Growth in retail sales quickened from 7.5% y/y to 7.8% (Bloomberg 7.8%, CE 7.9%). Fixed investment expanded 5.4% year-to-date (Bloomberg 5.5%, CE 5.3%), implying a pick-up in from 4.3% y/y to 4.8%. This was mainly driven by a recovery in manufacturing investment. (See Chart 4.) Property investment edged up, but having peaked in July, growth in floor space under construction continued to slow.
  • Pressure on economic activity should intensify in the coming months. Cooling global demand will continue to weigh on exports, fiscal constraints mean that infrastructure spending will wane in the near-term and the recent boom in property construction looks set to unwind. We expect monetary policy to be loosened before long in response, but it will take time for this to put a floor beneath economic growth.

Chart 1: GDP & CE China Activity Proxy (% y/y)

Chart 2: Industrial Production (contribution to % y/y)


Chart 3: Industrial Production (real, % y/y)

Chart 4: Fixed Asset Investment (contribution to % y/y)


Sources: CEIC, Capital Economics

Julian Evans-Pritchard, Senior China Economist, +65 6595 1513,
Martin Rasmussen, China Economist, +65 6950 5701,