Chinese economic data beat forecasts

Chinese economic data; Petrol prices

• Chinese economic data: The Chinese economy grew at a 6.9 per cent annual pace in the June quarter, above forecasts (+6.8 per cent). The economy grew by 1.7 per cent in the June quarter, up from 1.3 per cent in the March quarter and in line with the forecast estimate of 1.7 per cent.
• Chinese retail sales rose at a 11 per cent annual rate in year to June – the strongest result in 18 months. The result was above the 10.6 per cent forecast and the 10.7 per cent growth in the year to May.
• Production: Industrial production rose at a 7.6 per cent annual rate in June – a better result has not been recorded in the past 30 months. The result was above the forecast average (6.6 per cent) and above the 6.6 per cent growth in the year to May.
• Investment: Urban investment rose by 8.6 per cent in the six months to June on a year ago (forecast 8.5 per cent) and in line with the growth in the first five months of 2017.
• Petrol: According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 3.3 cents to 123.4 cents a litre in the past week.

What does it all mean?

• The Chinese leadership have been focussed on getting more economic growth generated from within – primarily by household spending or consumption. And the goals are being realised. Retail spending continues to grow at double-digit annual rates, while production and investment are more focussed on social infrastructure, communications, rural production and meeting the power needs of consumers and businesses.
• The Chinese economy is more than meeting expectations – in fact the key metrics in June and for the June quarter beat expectations and decisively so. A strong Chinese economy is very much in Australia’s interests and it continues to drive the global economy.
• The Chinese economy has clearly changed. The opportunities for Australia relate to meeting the needs of Chinese consumers rather than Chinese producers or exporters. And while demand for food and other consumer goods is solid, Chinese consumers are also building more homes and fitting out their new abodes.

What do the figures show?

Chinese economic data

• The Chinese economy grew at a 6.9 per cent annual pace in the June quarter, above forecasts (+6.8 per cent). The economy grew by 1.7 per cent in the June quarter, up from 1.3 per cent in the March quarter and in line with the forecast estimate of 1.6 per cent.
• Consumption accounted for 63.4 per cent of growth in the first half of 2017 with exports accounting for 3.9 per cent and investment accounting for 32.7 per cent.
• Retail sales rose at a 11 per cent annual rate in year to June. The result was above the 10.6 per cent forecast and the 10.7 per cent growth in the year to May.
• In real terms, spending was up 10.0 per cent in June on a year ago.
• Annual growth rates were: garments (7.3 per cent); building materials (up 15.2 per cent); furniture (up 14.8 per cent); personal care (up 11.2 per cent); home appliances (up 13.3 per cent); jewellery (up 6.3 per cent); office supplies (up 16.4 per cent); cars (up 9.8 per cent); cosmetics (up 17.0 per cent); telecoms (up 18.5 per cent); oil (up 4.2 per cent).
• Industrial production rose at a 7.6 per cent annual rate in June, above the forecast average (6.5 per cent) and above the 6.5 per cent growth in the year to May.
• Crude steel production rose by 5.7 per cent in June compared with a year ago. Other changes included: motor vehicles (up 6.2 per cent); communication (up 14.6 per cent); crude oil (down 2.3 per cent); natural gas (up 14.6 per cent); general equipment (up 12.3 per cent).
• Urban investment rose by 8.6 per cent in the six months to June on a year ago (forecast 8.5 per cent) and in line with the growth in the first five months of 2017. Private fixed asset investment rose by 7.2 per cent in the siz month to June on a year ago. Oil & gas extraction was down by 17.5 per cent while primary industry investment was up 16.6 per cent.
• Fixed asset investment was strongest in Health & social work (up 29.4 per cent), Electricity, heat production and supply industry (up 7.7 per cent); Computer, communications and other electronic equipment manufacturing (up 26.5 per cent); and Water Conservancy, Environment and Public Facilities Management (up 27.9 per cent).

Petrol prices

• According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 3.3 cents to 123.4 cents a litre in the past week. The metropolitan petrol price rose by 4.6 cents to 122.3 cents per litre while the regional price rose by 0.4 cents to 125.4 cents per litre.
• Average unleaded petrol prices across states and territories over the past week were: Sydney (up by 9 cents to 126.2 c/l), Melbourne (up by 14.8 cents to 128.9 c/l), Brisbane (down by 5.3 cents to 109.6 c/l), Adelaide (down by 11 cents to 116.4 c/l), Perth (up by 1.5 cents to 120.0 c/l), Darwin (unchanged at 130.8 c/l), Canberra (unchanged at 129.0 c/l) and Hobart (down by 0.2 cents to 136.6 c/l).
• The national average Australian price of diesel petrol was down by 0.1 cents to 126.5 cents per litre in the week to July 16. The metropolitan price was down by 0.2 cents to 126.4 c/l, while the regional average price fell by 0.1 cents to 126.5 c/l.
• Today, the national average wholesale (terminal gate) unleaded petrol price stands at 109.5 cents a litre, up by 0.9 cents a litre over the week. The terminal gate diesel price stands at 108.8 cents a litre, down by 1 cent a litre over the week.
• Last week the key Singapore gasoline price rose by US5 cents or 0.1 per cent to US$60.45 a barrel. In Australian dollar terms the Singapore gasoline price fell by $1.57 or 2 per cent to $78.06 a barrel or 49.09 cents a litre.
• MotorMouth records the following retail prices for capital cities today: Sydney 123.6c; Melbourne 127.0c; Brisbane 113.8c; Adelaide 111.3c; Perth 109.2c; Canberra 129.0c; Darwin 130.6c; Hobart 136.6c.
• In the June quarter petrol fell by 2.5 per cent after rising by 5.7 per cent in the March quarter.

What is the importance of the economic data?

• China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 19th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10th of each month. China is Australia’s largest trading partner and changes in the Chinese economic have major implications for the Aussie economy.
• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory’s metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth

What are the implications for interest rates and investors?

• The strong Chinese economic data is encouraging for Reserve Bank policymakers. The latest data gives the Reserve Bank more reason to stay on the interest rate sidelines. And interest rate hikes seem more likely in mid to late 2018 than interest rate cuts in the short-to-medium term.
• Cheaper petrol prices, coupled with the recent strength in employment, should support confidence and, in turn, retail spending.