China’s GDP expanded by 7.9%YoY in Q2’21. Though growth slowed from 18.3%YoY in Q1’21, the first quarter data was exaggerated by the economy having slumped in Q1 last year when the pandemic first hit. Thus, the latest data for Q2’21 marks the economy returning to its long-term annual growth rate near 6.0%. It’s also worth noting that in Q2’21 the economy grew by a firm 1.3%QoQ compared to just 0.4%QoQ in Q1’21.
Source: Bank of Singapore, Bloomberg
June’s activity data also showed resilience. Industrial production, fixed asset investment and retail sales slowed further as the first chart shows. But each release was stronger-than-expected at 8.3%YoY, 12.6%YoY and 12.1%YoY. Similarly, June’s exports also beat expectations rising strongly by 32.2%YoY as the second chart shows.
Source: Bank of Singapore, Bloomberg
The Q2 GDP report and June’s activity data thus help allay fears that China will suffer a broader slowdown as its V-shaped rebound peaks. The statistics also signal the People’s Bank of China’s recent 0.50% cut to commercial banks’ reserve requirement ratios (RRRs) may turn out to be a limited move only to ‘fine-tune’ growth rather than the start of a longer easing cycle.
Source: Bank of Singapore, Bloomberg
We expect the economy to record firm growth for the rest of 2021 from manufacturing, exports and rising consumption. We also think local governments will issue more bonds to fund new spending with the RRR cut boosting bank lending. Broad credit growth should pick up after falling this year as the last chart shows. We thus forecast 2021 GDP to grow strongly still by 8.7%.Disclaimer applicable to recommendation
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