CHART OF THE WEEK
The publication of the Chinese GDP for the first quarter of 2018 shows a growth of 6.8% over one year, a stable rate for three quarters and higher than the government’s target for this year, set at around 6.5%.
Consumption accounts for three quarters of this growth and thus remains the main driver. Investment was also a supporting factor, thanks to a rebound in real estate and a recovery in private investment. Exports remained strong but imports were more dynamic. As a result, foreign trade weighed on activity.
OUR ANALYSIS
China’s growth remains strong and the government is on track to meet its growth target this year. Consumption is particularly dynamic and should remain an important support, driven by the still rapid growth of real incomes (+6.6% over one year).
However, several risk factors remain to be monitored, such as the ongoing slowdown in credit growth, particularly in shadow banking activities. This is reflected in a marked slowdown in public investment because local governments traditionally used this type of alternative financing for their infrastructure projects. The good news is that private investment could take over if the improvement is confirmed.
The slowdown in credit also weighs on home sales, which could have repercussions on investment in real estate. However, a slowdown on similar scale to that of 2014-2015 is unlikely. The dynamism of sales in 2015-2016 made it possible to adjust the stock of housing units for sale and the rise in property prices remains sustained.
Finally, the protectionist measures envisaged by the United States pose a risk to exports and growth. Nevertheless, China is now less dependent on exports than it was in the past and these threats are still only announcements.
The opinion expressed above is dated 18 April 2018 and is liable to change.
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