China’s growth ebbed in the third quarter, while inflation edged just a touch higher, showing that the world’s second-largest economy was strong, but far from overheating, and suggesting that an interest rate rise this week may be enough for now.
Coming a day ahead of a meeting of G20 finance ministers in South Korea, where the US and others are expected to push for a stronger Chinese currency, the data could in fact lead Beijing to put appreciation back in the slow lane.
“The window for large yuan gains is closing fast. Export growth is slowing and, assuming the current trend is sustained, year-ago growth is on track to fall well below 10 percent,” said Ben Simpfendorfer, an economist with Royal Bank of Scotland in Hong Kong.
Although the suite of data published yesterday was broadly in line with forecasts, the numbers in fact were something of a downside surprise after market chatter that growth and inflation had been much stronger than expected, prompting the surprise rate increase.
“Chinese officials are likely feeling quite pleased with the way the data are playing out,” said Brian Jackson, an economist with Royal Bank of Canada in Hong Kong. “Policy measures put in place earlier this year appear to have helped steer the Chinese economy through a middle course between overheating and a serious downturn.”
Financial markets were largely unmoved by the data.
Economic growth dipped to 9.6 percent in the third quarter from a year earlier, down from 10.3 percent in the second quarter, the National Bureau of Statistics reported. The consensus expectation was 9.5 percent.
Much of the slowdown can be explained by a higher base of comparison after China’s rebound last year from the global financial crisis. It is also a desired outcome for the government, which has gradually withdrawn the monetary and fiscal stimulus that powered the recovery.
Inflation rose last month to 3.6 percent, reaching a 23-month high and smack in line with forecasts, but industrial output — a key indicator of growth momentum — slowed to a 13.3 percent year-on-year increase, its lowest in 13 months and missing forecasts of a 13.6 percent rise.
China surprised markets with its interest rate increase on Tuesday, its first in nearly three years and an attempt to cool asset markets. With price pressures still mild, many analysts said it could afford to wait until next year to gauge the impact of higher rates before raising them a second time.
Simpfendorfer said the decision would rest in large part on the property sector. Despite a months-long campaign to crack down on speculative buying, housing prices have started to climb again and the government is determined to calm the market.
In a statement accompanying the release of the data, the statistics agency said China would maintain policy stability and consistency, while also making measures more targeted and flexible — code for minor adjustments rather than wholesale abandonment of monetary policy that the government still describes as “appropriately loose.”
China’s inflation is not broad based.
Food prices, which account for a third of the country’s consumer price index, rose by an annual 8 percent last month, while core non-food inflation slowed to 1.4 percent from 1.5 percent a year earlier.
With food prices still climbing, China could be on course for a higher inflation reading this month, but that could be the peak.
“We expect GDP growth to continue slowing to about 9 percent year-on-year in the coming quarters,” said Sun Junwei (孫俊偉), HSBC’s China economist. “A negative output gap should further ease underlying inflationary pressure.”
Because the rate rise — the first in nearly three years — was so unexpected, many in the market had assumed that the GDP and inflation figures would surprise on the upside.
In this cycle of growth, it appears that the Chinese economy peaked in the first quarter, when it expanded by an annual 11.9 percent. That may stand as the strongest quarter for years to come, because the government is now trying to reform the economy, shifting it away from high-octane investment growth and toward greater reliance on domestic consumption.
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