- In the December quarter the economy grew by 2 per cent, below the consensus estimate of 2.2 per cent.
- Retail sales in December were up 15.2 per cent on a year ago – the fastest pace of growth in 10 months (consensus 14.9 per cent); industrial production was up 10.3 per cent – the fastest pace of growth in nine months (consensus 10.1 per cent); and fixed asset investment over 2012 was up by 20.6 per cent (consensus 20.7 per cent).
- The data confirms that the Chinese economy is lifting from an engineered slowdown.
What does it all mean?
- Just over 18 months ago Chinese authorities engineered a slowdown of the economy. The slowdown is complete and the recovery is now gathering momentum. Chinese policymakers would be pleased with the progress the economy has made over the last quarter. Economic growth picked up after bottoming out at a three-year low in the prior quarter, while retail sales and industrial production growth rates were holding at the fastest pace in 10 and nine months respectively.
- Given the improving data flow Chinese authorities are unlikely to provide any additional stimulus, especially given that consumer price inflation has started to rise. Interestingly the Aussie dollar eased after the data releases, a clear reflection of a moderating view that near term stimulus was likely.
- While China has successfully engineered a soft-landing, achieving firmer growth while keep prices pressures in check will be a challenge. And Chinese authorities don’t have control of all prices but need to be mindful of the effects. For instance food prices.
- Overall the latest data bodes well for Australia, and the Reserve Bank is likely to feel more comfortable about the fortunes for Australia. And looking forward it is looking more unlikely that the Reserve Bank will be cutting interest rates in February given the improving global outlook. In the past few weeks the improvement in confidence levels and rise in share markets will be another reason that the Reserve Bank will keep interest rate on hold.
What do the figures show?
- The Chinese economy grew at a 7.9 per cent annual rate in the December quarter (consensus 7.7 per cent), up from the 7.4 per cent annual rate in the previous quarter. For the December quarter GDP grew by 2 per cent after rising by 2.2 per cent in the September. Economists had tipped 2.2 per cent quarterly growth.
- Industrial output expanded at a 10.3 per cent annual pace in December – the fastest in 9 months, up from 10.1 per cent in November, and above forecasts centred on a result near 10.2 per cent. In December, production grew by 0.86 per cent or 10.3 per cent if replicated over a year. Production growth has bottomed and is lifting modestly as expected.
- China’s urban fixed asset investment, such as spending on roads and power plants, grew at a 20.6 per cent in 2012, a little below forecasts (20.7 per cent). Investment in 2011 totalled 24.0 per cent.
- Retail sales grew at a 15.2 per cent annual rate in December, the fastest in ten months, up from 14.9 per cent in the year to November and above the consensus forecast of 15.1 per cent.
- House prices fell by 0.04 per cent in the year to December, after the 0.7 per cent decline in year to November.
What is the importance of the economic data?
China’s National Bureau of Statistics releases its monthly economic statistics around the 10th of each month. Quarterly GDP data is released around the 16th of January, April, July and October. China is Australia’s largest trading partner and changes in the Chinese economic have major implications for the Aussie economy.
What are the implications for interest rates and investors?
The latest data showing further recovery in the Chinese economy is encouraging for Australia’s exporters, especially in the resources sector. If the recovery continues over the next few months the Reserve Bank will have reason to keep interest rates on hold over the early part of 2013.