China 2Q12 GDP projected to register 7.9%
Growth momentum has been clearly decelerating in 2Q12, says DBS, as evidenced by dampening external demand and slower fixed asset investment growth.
DBS Group Research noted:
2Q12 GDP on tap this Friday is projected to register 7.9% YoY, versus 8.1% in 1Q12. Growth momentum has been clearly decelerating in 2Q12 as evidenced by dampening external demand and slower fixed asset investment growth. External trade weakness persisted in the second quarter.
Export and import growth are respectively less than half of and one-third of growth rates back in 2Q11. Exports and imports grew 10.5% and 6.4% respectively in 2Q12, versus 7.6% and 6.8% in 1Q, rounding up the 2Q trade surplus at USD 68.8bn versus USD 0.7bn in 1Q. While a larger trade surplus positively boosts headline real GDP growth, it is primarily caused by slower import growth.
Fixed asset investment (FAI) growth decelerated to 20.0% YTD (June est.) from 20.9% in 1Q12 alongside the drop in M2 growth to 13.3% (June est.) from 13.4% in the same period. Thankfully, the pace of deceleration has slowed. To compare, FAI growth dropped steeply from 23.8% in Dec11 to 20.9% in Mar12. Amid controls in the property market, real estate’s contribution to FAI growth has clearly dropped to 28.5% April-May (YoY) versus 36.6% in 1Q12. The slowdown in real estate investment is, however, self-engineered. Premier Wen reiterated this week that Beijing will maintain a firm grip on the property sector.
Private consumption remains the only bright spot, being traditionally more resilient than exports. Nominal retail sales are projected to grow at a slower pace of 14.1%, versus 14.9% from the preceding quarter. But the quick retreat of the CPI to 2.9% in 2Q12 from 3.8% elevated retail sales in real terms to 11.5% from 11.0% previously.
That said, the degree of growth deceleration should be measured. After all, consumption has begun to trend upward in real terms, net exports have ballooned since 1Q12 and part of the investment deceleration is intended. Looking ahead, FAI should receive a modest boost in 3Q as the government rushes to approve projects targeted at specific industries, such as water conservation and rural infrastructure projects. Consumption is likely to remain steadily resilient though upside surprises are limited.
Lingering woes in Europe and downward revisions in US growth projections of late point to more challenges ahead for exports. The erratic performance of net exports is difficult to gauge accurately. If imports were to slow faster than exports going forward, the trade surplus may inflate notably in 2H12. Regardless, net exports’ contribution to GDP growth has diminished over the years, so the onus will be on investment and consumption to drive growth. Both are expected to pick up in 3Q12.