Investment Clock insights

China's better than expected GDP figures

15 July 2015

Ian Kernohan

GDP growth stabilised at 7% year-on-year in Q2, a little stronger than consensus expectations. The financial sector looks to have been a key driver, given the jump in tertiary sector activity. Retail sales growth rose to 10.6%, while there are signs that the various monetary and fiscal policy measures implemented since last year are having an impact, particularly in the property sector.

It is clear that China’s stock market slide was not caused by a sudden slump in economic activity. It remains to be seen if the falls in stock prices have a negative effect on consumer spending from here on in.

Trevor Greetham

This is the slowest pace of GDP growth in six years, but from a global stock market point of view China’s slowdown is good news, just as Japan’s weakness was good news in the 1990s. A steady drop in Chinese demand will see commodity prices drop, keeping inflation low and monetary policy loose elsewhere in the world.

When people come to write the history of this period they will give a bigger role to China. The global housing bubble that set the scene for the Global Financial Crisis had its roots in the low interest rate central banks set to offset the deflationary impact of cheap Chinese manufactured goods in the 2000s. China was also recycling its trade surplus aggressively into overseas bond markets, further stimulating their economies.

The trigger for the bust came when China’s demand for resources pushed commodity prices and inflation rates up, leading central banks to hike interest rates until the dam broke.

Continuing this line of argument, a weak, deflationary China is good news, not bad news, for the rest of us today.

The value of your investment and the income from it is not guaranteed and can fall as well as rise. This article is for professional customers only. The views expressed are the author’s own and do not constitute investment advice