Chinese economy maintains stable momentum in Q3, growth unlikely to be sustainable

As widely anticipated China’s economy maintained steady momentum in the third quarter. The economy expanded 6.7 percent year-on-year and 1.8 percent sequentially in the September quarter. This was consistent with the consensus projection. The year-to-date growth rate came at 6.7 percent. There is a high probability for the nation to attain its annual target of at least 6.5 percent of growth.

Easy monetary conditions, a red-hot housing market and an accommodative fiscal policy have been underpinning domestic demand so far in 2016. The heated housing market has set off a rebound in construction activity. This is not sustainable, noted Nordea Bank in a research note. The stable macro momentum is expected to begin deteriorating from the year-end, when the monetary support wanes and the housing market starts easing due to tighter regulations.

“We expect Q4 GDP growth to be 6.5 percent y/y and thereby revise our annual forecast to 6.6 percent y/y. The cooling housing market will extend its drag on growth into next year”, said Nordea Bank.

Chinese equities initially rose higher after the news; however the gain has retreated rapidly. The CNY and CNH have not much changed from yesterday against the backdrop of a flat fixing rate this morning, stated Nordea Bank.

The country’s National Bureau of Statistics mentioned that the total consumption, including public and private, added to the bulk of the growth for the three quarters in 2016. Even if this might show that China is accelerating the transition from an investment-driven to a consumption-led economy, this data is to be taken with a pinch of salt as it is not always in line with the other macro indicators, according to Nordea Bank. Meanwhile, net exports are expected to have been a drag on the the growth as it has done in the last few years.

In the meantime, China also released the data for industrial production, fixed assets investment and retail sales for the month of September. Retail sales and investment both showed moderate improvement from August, whereas industrial production growth surprisingly dropped to 6.1 percent in September from 6.3 percent, in spite of the aggressive policy stimuli.