China maintains the faster pace of growth in Q2 as well

In Q2 2017, China’s economy again grew by 6.9 percent on the year and has thus maintained the slightly brisker pace of growth seen at the beginning of the year. The monthly economic figures for April and May suggested that growth in the prior quarter might have slowed slightly, but in June the economy seems to have become far more zestful. These are good signs for the second half, when growth will probably maintain this momentum. In the run-up to the Communist Party of China’s (CPC) Party Congress in the autumn, which takes place only once every five years, the leadership in Beijing is, among other things, emphasising “stability”. If necessary it will also provide short-term growth stimuli to ensure that economic conditions remain favourable. The Chinese economy is at present also benefiting from the improved global economy. In recent months, foreign trade has supported growth. Given these conditions, we are upholding our forecast of 6.8 percent growth for 2017 as a whole.

The Chinese economy has once again been a positive surprise, reporting a slight uptick in the economic figures. The Chinese statistical office announced that the annual pace of growth in the second quarter was 6.9 percent or on a par with the first quarter and thus slightly above the market consensus. The two preceding quarters had also posted a surprise with an unexpected burst of growth in both cases. China’s economic recovery thus continues.

However, at the start of Q2 it had looked more as though the Chinese economy was going to lose steam again, above all because the boost given by government investments was dwindling. After all, the clear expansion in government infrastructure measures last year had sparked the upturn. In April and May, the pace of growth slowed in particular in industry, and sentiment dimmed again appreciably. The latest indicators for June suggest, however, that the economy picked up again in the final month of Q2. Growth in industrial output has surged, from 6.5 to 7.6 percent – a three-month high and in mid-quarter actually the highest rate in two and a half years. Sentiment indicators have also turned around and headed north again. It would seem that foreign trade has delivered the decisive stimuli as the relevant survey findings have most recently clearly improved. China’s commodity exports are now back posting double-digit growth rates. That said, the recovery in the export sector is more hesitant than might appear at first sight, as export prices have also clearly risen. In real terms, the increase is therefore considerably lower. Compared with the decreases in the last two years, exports are at present nevertheless functioning as a pillar for the economy as a whole.

The current figures confirm our comparably optimistic economic outlook for China for this year and next year. The Chinese economy’s somewhat brisker pace in June bodes well for the second half of the year. The global economy is increasingly up to speed and will presumably boost China’s exports this year and next year. Political aspects also play a role: At the CPC Party Congress in the autumn the political leaders want to be applauded. The highest members of the leadership seek to be confirmed in office and countless other posts will be reassigned. A favourable economic climate is almost indispensable in such a setting. Beijing will therefore, if necessary, again resort to intervention in the form of short-term economic stimuli. The much debated question of debt will take a backseat and will probably not be tackled for a while, which is positive at least for the short-term economic outlook. We therefore uphold our forecast of 6.8 percent growth for 2017 as a whole. In 2018, growth should only be marginally less at 6.7 percent.

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