China released its much-anticipated Q2 GDP growth rate Friday, announcing it met expectations for 7.6% y/y growth, down from 8.1% in the first quarter. Overall, China’s economy grew 7.8% in the first half of the year. As usual, though, digging into the data paints a more enlightening picture.
Sequentially, GDP rose 1.8% quarter over quarter (q/q), accelerating from Q1’s 1.6% q/q growth. The composition of growth shifted, too—private consumption weakened some relative to government spending, which gained momentum. Hardly surprising, given the government’s numerous initiatives aimed at goosing growth. Fixed asset investment growth rose to a three-month high—20.4% year over year (y/y), led by infrastructure investment, which rose 8.2% y/y. That’s a pretty quick clip. Meanwhile, industrial production slowed only marginally to 9.5% y/y from 9.6% y/y, and retail sales growth fell to 13.7% y/y but still beat expectations for 13.0% y/y.
All told, the numbers argue against the hard-landing many feared was in store this year—particularly infrastructure investment, which would seemingly suggest government plans to push forward projects are starting to reflect in the data. Going forward, it wouldn’t be too surprising to see more official efforts at stimulating growth show up as well—efforts like interest rate and required reserve ratio cuts, increased money supply and new bank lending. In fact, loan growth increased a red-hot 16% in June from May—a positive sign of likely increased economic activity ahead.
The media, though, seemed to have quite conflicted takes on China’s news. Here’s a sampling of headlines from Friday’s reporting:
In other words, China GDP, which may or may not even be accurate, indicated slower economic growth—which could be attributed to global (ostensibly, eurozone) turmoil, but may simultaneously be heightening the likelihood of a global economic slowdown—and (confusingly) contributed to Friday’s (intraday) increase in oil prices. Got that?
Now, to be sure, it’s possible China’s headline GDP print is a touch doctored—China’s not exactly known for its transparent government, and officials have admitted past economic readings weren’t quite on the up and up. But even those pointing fingers at dirty data suspect China notched upwards of 7% growth—slower, but still not the feared hard landing.
Most media consternation Friday surrounded the assumption a weakened eurozone (and, by some accounts, US) means those nations will provide little demand for China down the road. But many also seemingly fear a weak China won’t help lift global growth. So which way is it? As is so prevalent in the media, folks assume if consumers aren’t consuming, there can’t be any economic growth. In a global scenario like this one, that would seemingly create a vicious, downward-spiraling trend which we’d presumably never escape—a dearth of global demand for Chinese goods would slow China’s economy, further preventing China from lifting the rest of the world out of the doldrums, further inhibiting global demand for Chinese goods, etc.
But if that were true and there were a negative feedback loop between US and Chinese growth, why did trade between the two nationsincrease in June? Or more broadly, how is it that we’ve recovered from every global slowdown we’ve seen historically? Said differently, consider the fact we’ve never failed to return ultimately to a long-term growth trajectory, even though that process has occasionally taken longer than folks would like. The likelihood this time proves the exception is beyond exceptionally slim.
Capping it off, markets seemed to overall agree with that take Friday, too, rising nicely to shake a recent string of down days. Seems the markets know something the media largely missed. But then again, that’s why it’s the ultimate leading indicator—and The Great Humiliator.
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