The Chinese economy lost further momentum over the summer months. Economic growth in the third quarter was again lower than in the previous quarter, falling to a new 27-year low of 6.0 percent (y/y). Market estimates were thus slightly missed, but our own somewhat more sceptical expectations came true. The downward trend that began at the beginning of last year with the outbreak of US-Chinese trade disputes has continued.
The largest growth losses occurred in industry, which recorded its lowest increase since 1990 in the past quarter at 5.0 percent. This figure would have been even weaker if industrial production had not picked up visibly in September, the month that ended the quarter. We remain cautious, however, as to whether this will signal a reversal of the industrial downturn. On the contrary, as in the course of the year to date, this could conceal government measures that have been brought forward, the effect of which will soon fade away again.
The main burden on China’s economy remains the tariff dispute with the USA. Despite the tariff increase just suspended by Donald Trump, the weighted tariff rate on Chinese deliveries to the USA is still over 15 percent. Meanwhile, China’s real exports are shrinking significantly and the contribution of foreign trade to economic growth has turned negative. And it remains to be seen in the coming months whether the abolition of customs duties and the resulting easing of the trade conflict will actually last.
We have recently lowered our growth forecast for China once again. For this year we only expect an increase in gross domestic product of 6.1 percent, next year 5.8 percent. So while growth this year is still expected to be close to the target, the Chinese government will probably have to lower the target corridor again next year.