China activity growth likely to weaken in Q4 on slowdown in housing, credit impulse: DNB Markets

China’s activity growth is expected to weaken during the fourth quarter of this year, owing to a slowdown in the housing market and a negative development in the credit impulse. The September data confirmed this view, with nationwide home sales falling by 6 percent y/y, the first decline in sales since March 2015. The slowdown is particularly driven by weaker sales in the large cities, with T1 and T2 cities down about 40 percent y/y in recent weeks.

There are clear signs that the government will continue to crack down on speculation in the housing market. In yesterday’s report to the Party Congress, President Xi Jinping reiterated that “housing is for living in, not for speculation”. Granted, housing starts are still rising, but with sales on a clear downward trend, we maintain our forecast of a decline in starts by 4 percent in 2018.

The September data for the Chinese economy was broadly in line with consensus expectations. Most notably, industrial output growth accelerated to 6.6 percent y/y, up 0.6pp from August. Retail sales growth also edged up, ending at 10.4 percent y/y in nominal terms, which was 0.2pp higher than expected. Meanwhile, fixed asset investments for the nine first months of the year came in slightly weaker than expected but the September data alone showed a modest increase in growth.