China’s GDP Comes in Better than Expected at 6.9% Y-Y
In the latest sign of economic stabilization, China reported better-than-expected growth for Q-1 of Y 2017.
The world’s 2nd-largest economy saw its GDP (gross domestic product) rise 6.9% Y-Y to hit US$ 2.63-T in Q-1, up from 6.8% growth in the prior Quarter, according to the National Bureau of Statistics (NBS).
This beat market expectations of 6.8% and came well above the annual growth target of around 6.5% set in this year’s government work report.
NBS spokesperson Mao Shengyong said the economy had achieved a rosy start for this year, attributing the strong performance mainly to robust factory activity, strong consumption and rebounding exports.
GDP was up 1.3% in a Q-Q basis.
“China’s economic structure is improving and new momentum is gathering,” Mao said, citing strong growth in the service sector and consumption.
Consumption contributed 77.2% of the GDP increase in Q-1.
The service sector rose 7.7% in the frame outpacing a 3% increase in agriculture and 6.4% in the secondary industry. It accounted for 56.5% of the overall economy.
For the secondary industry, Mao said sectors such as advanced manufacturing are seeing better-than-average growth, while traditional sectors are also making improvements in quality and technology as the country’s supply-side structural reform takes effect.
The job market remained stable, with 3.34-M new jobs created and the surveyed unemployment rate staying under 5%, NBS data showed.
Mao believes the Q-1 data show that China has laid a solid foundation to achieve its full-year economic target, which was trimmed to around 6.5% from a range of 6.5 to 7% for Y 2016 to facilitate the country’s structural adjustments.
While declining to predict the actual growth figures for the quarters ahead, Mao particularly stressed the increasing stability of China’s economic performance and its untapped development potential.
“There will be steady reform dividends and the economy has enormous potential in the medium to long term,” he said.
It is “no big deal” if economic growth slips by some tenths of a percentage point in the near future, he said, noting that China’s economic growth rate has become less volatile in recent years, with 6.9% for Y 2015, 6.7% for Y 2016 and 6.9% for Q-1 of Y 2017.
Based on the stronger-than-expected data, investment bank J.P. Morgan (NYSE:JPM) raised its Y 2017 GDP growth forecast for China by 0.1 percentage points to 6.7%, citing broad-based strength across various sectors reflected in the data.
Though the bank expects GDP growth to ease moderately in Q-2, and even look for some further moderation in following Quarters, there is still solid growth momentum for the rest of the year, said J.P. Morgan China economist Zhu Haibin.
While still cautious about future prospects, economists believe that the resilience reflected in the Q-1 figure will prompt stricter scrutiny in the financial sector, a move pushed by Chinese authorities to fend off systemic risks.
Authorities who were once concerned that strict regulation would dampen economic growth will no longer hesitate to take stronger measures in financial and real estate controls.
Mao admitted that the influence of China’s property controls will gradually become evident in April and the following months as they were only introduced in mid-March.
“It is fair to say the housing market outlook is a major uncertainty for the economic outlook this year,” said Zhu of J.P. Morgan.
Though extreme movements in the housing market are not expected, given the importance of the housing market, even modest upside or downside risks to the housing market could affect the trajectory of growth forecasts, he said.