China's GDP ...... is your glass half-empty of half-full ?

Tuesday 20th October 2015

 China's GDP ...... is your glass half-empty of half-full ?

Ref : "Growth data buoy China at "pivotal moment" in economic rebalancing" , The Financial Times, p.6

First, let's get yesterday's numbers out of the way ..... China's Q3 GDP grew by 6.9%. The breakdown reveals that consumption accounted for 58% of the growth figure, the services grew at a healthy 8.6% in contrast to the slowing expansion in the industrial sector of 5.8%.

As ever, the figures can be read in a number of ways ..... much would depend on your faith in official Chinese statistics (and very possibly the positions you hold in the market-place). But at face value, one could argue that the 6.9% headline growth figure was above expectations of 6.8% and meets the official target of  "around 7%". Moreover, the strong consumption data and the robust showing of the service sector demonstrates that progress is being made in the drive to re-position the economy, boosting domestic consumer consumption and services and becoming less reliant on investment and manufacturing.

So it could be mildly bullish, right ?

Well, not if you're an emerging market commodity-producer weighing up the disappointing industrial data and the effect that slowing demand might have on prices. Remember that 6.8% still represents the lowest quarterly growth figure since 2009. And certainly not if you're one of those who remain sceptical of China's official data .... and there would be plenty of you. We spoke on Friday about how both high-profile investor in Far East stocks Mark Mobius and analysts the Rhodium Group believe that the methodology employed in compiling China's GDP data is broadly in line with international standards and that the level of official obfuscation is overestimated. More than that, they contend that it's very possible that the switch from a manufacturing-oriented economy to a service one means that areas of activity are slipping through the net, and that the true numbers may actually be higher than the official releases. It's an interesting point of view, but very much the minority one.

The fact remains that many still have doubts about the accuracy of official numbers, and they are pointing out that it's difficult to believe that services could have put in such a strong performance when in recent quarters so much of that area has been driven by the financial sector..... and if the readings for the service sector are skewed, where would that leave headline GDP ?

As ever, you pay your money and take your choice. The two differing interpretations probably explain why market reaction to the figures has been muted, though commodity prices have taken a bit of a hit. Only two things are certain :

1. One way or another, the Chinese authorities are intent on keeping future GDP stats up to (or very near to) the official target of 7.0%. We can expect further stimulus measures fairly promptly : another rate cut and reductions in the value of reserves that individual banks are required to hold at the central bank.

2. The doubters will not go away.

" The ECB, and how good news can be bad news"

Ref : General

Just a note to remind all that the ECB governing council meets in Malta on Thursday and Friday. Most had thought it likely that the slip back towards deflation and muted growth in the Eurozone would prompt the ECB to expand/extend its Quantitative Easing programme.

 That view has been somewhat undermined today by the release of the central bank's own survey into bank lending conditions