China: GDP growth expected to normalize by year-end – UOB

UOB Group’s Economist Ho Woei Chen, CFA, assesses the latest GDP figures in the Chinese economy and its prospects for the next months.

Key Quotes

“The October macroeconomic data confirmed that China’s recovery from COVID-19 is continuing but has expectedly moderated after the initial spurt as activity converges to levels prior to the pandemic. Industrial production and fixed asset investment slightly beat expectation while the rebound in retail sales lagged consensus forecast and remains in contraction year-to-date (YTD). The industrial production and fixed asset investment have already returned to YTD gains in the last 2-3 months while earlier data also showed exports turning the corner with positive growth of 0.5% y/y in January-October from -0.8% y/y in the preceding 9 months (Jan-Sep).”

“October New RMB loans that were reported last week reflected seasonal weakness due to the Golden Week holidays. However, new loans were still up from October 2019 while medium/longterm loans to the corporates were also higher compared to the year-ago period. This suggests that monetary policy is sufficiently accommodative to boost the recovery and we do not expect further cuts to the loan prime rate (LPR) or banks’ reserve requirement ratio into 2021.”

“We maintain our expectation for China’s GDP growth to accelerate and normalise to its potential level in 4Q20 as the economic recovery broadens out more towards private consumption and investment. Our forecast for 4Q20 GDP is at 6.2% y/y compared to 4.9% y/y in 3Q20 with fullyear 2020 GDP growth at 1.9%.”