德银-中国Q2经济低于预期 Growth decelerated in Q2 20240715

DeutscheBank

Research

Asia

China

Economics

ChinaMacro

GrowthdeceleratedinQ2

China'srealGDPgrowthdeceleratedto4.7%YoYinQ2,missingmarketexpectationsby0.4ppt.Thedragmainlycamefromtheservicessector,wheregrowthslowedto4.2%inQ2onthebackofsofterdomesticdemandandanunderperformingpropertysector.Meanwhile,theindustrialsectormaintained5.6%growthinQ2,inpartthankstostrongexports.SequentialGDPgrowthhalvedto0.7%QoQinQ2from1.5%QoQinQ1.

Thesoftnessinthedomesticeconomyisevidentfrom(1)pricesdeflation,wheretheGDPdeflatorstayednegativefora5thconsecutivequarterat-0.7%YoYinQ2;(2)householdspendinggrowth,whichdroppedto5%YoYinQ2from8.3%inQ1,asincomegrowthalsoslowedto4.5%YoY;and(3)monthlyactivitydata,whichbyourestimateimpliedafurtherdecelerationofgrowthto3.9%YoYinJunefrom4.6%inMayand5.4%inApril.

Overall,today'sdatasuggestChina'sgrowthisdeceleratingowingtoweaker-than-expecteddomesticdemand.Thishasledustorevisedownour2024GDPgrowthforecastto4.9%(from5.0%),andweexpectgrowthwillstayatjustbelow5%inthenexttwoquarters.AswehavediscussedinourChinaH2Outlook,policymakersmayneedtorethinktheirnear-termpolicymixtoachievethe5%annualgrowthtarget.Inparticular,abudgetrevisionismaybenecessarytokeepupthepaceofspendingagainstacontinueddeclineinlocalgovernmentrevenues.ThePolitburomeetinginlate-Julywillbeakeyeventforthesignalingofadditionalpolicysupport.

Date

15July2024

YiXiong,Ph.D.

ChiefEconomist+852-22036139

DeyunOu

ResearchAssociate

GrowthdeceleratedinQ2

Distributedon:15/07/202406:43:15GMT

China'srealGDPgrowthdeceleratedto4.7%YoYinQ2,missingmarketexpectationsby0.4ppt.Thedragmainlycamefromtheservicessector,wheregrowthslowedto4.2%inQ2.AdetailedbreakdownofGDPbysectorhasyettobepublished(onTuesday),butwethinkthepropertysectordownturnandslowercreditbythefinancialsectorarelikelythemaindriversofslowerservicessectorgrowth.Incontrast,theindustrialsectormaintained5.6%growthinQ2,inpartthankstostrongexports.

NominalGDPgrowthstayedbroadlyunchangedat4.0%YoYinQ2.ThisimpliesthattheGDPdeflatorwasnegativeagainat-0.7%YoY,stayingbelowzeroforafifthconsecutivequarter.AlthoughChina'sCPIandPPIhavebothbeenimprovinginthepastfewmonths,themomentumofimprovementwasnotasstrongaswehadexpected.

DeutscheBankAG/HongKong

IMPORTANTRESEARCHDISCLOSURESANDANALYSTCERTIFICATIONSLOCATEDINAPPENDIX1.MCI(P)041/10/2023.UNTIL19thMARCH2021INCOMPLETEDISCLOSUREINFORMATIONMAYHAVEBEENDISPLAYED,PLEASESEEAPPENDIX1FORFURTHERDETAILS.

15July2024ChinaMacro

SequentialGDPgrowthalsohalvedto0.7%QoQinQ2from1.5%QoQinQ1.QoQgrowthwasactuallyhigherthanwehadexpected(0.5%QoQ)butthisislargelyowingtorevisionstohistoricalQoQgrowthfigures.Takingtherevisednumbers,the0.7%QoQgrowthinQ2isstillthelowestQoQgrowthChinahasseensinceQ42022.

Figure1:Deflationpressuresremained

%,YoYRealGDPNominalGDP

25

20

15

10

5

0

-5

'12'13'14'15'16'17'18'19'20'21'22'23'24

Source:DeutscheBankResearch,NBS,WIND

Figure2:SequentialgrowthdeceleratedinMarch

%YoYRealGDPgrowthforecast,monthly

RealGDPgrowth,quarterly

20

15

10

5

0

-5

-10

'18'19'20'21'22'23'24

Source:DeutscheBankResearch,NBS,WIND

Juneactivitiesslowedfurther.

nIndustrialoutputgrewby5.3%YoYinJune,slowingfrom5.6%inMay.Butitwasstillabove5%andrepresented6%YoYYtdgrowthinthefirsthalfof

2024.Therelativelyrobustproductionactivitiesaremainlydrivenbystrongexternalorders.Evidently,exportsfurtherimprovedto8.6%YoYinJuneandreached3.6%YoYYtd,leadingtheexportdeliveryvaluestogrowby3.3%YoYYtd.Butwiththeabsenceofstrongdomesticdemand,thecapacityutilizationrateandsalesratiostayedlowat74.5%and95.3%,respectively.

nServicesoutputfurtherslowedto4.7%YoYfrom4.8%inMay.ThroughoutQ2,thegrowthoftheservicessectorhasbeendecelerating,despitethestrongrecoveryinholidaytourismactivities.Thisismaybepartlybecausetouristspendingincreasedatalowerratecomparedtothenumberoftourists.Additionally,theunderperformingpropertysectorandfinancesectormayhavecontributedtothistrend.

nRetailsalesfellto2%YoYfrom3.7%inMay,markingthelowestreadingsinceDec-22.Onaseasonallyadjustedbasis,theydeclinedby0.12%MoM,whichisalsothesharpestdropsinceDec-22.Theweaker-than-expectedretailsalescanbeattributedtothefactthatthefront-loaded‘618’shoppingfestivalfadedearlierthaninpreviousyears.Evidently,onlineretailsalesfellby9%YoYinJuneafterthespikeof5%inMay.Andproductswithhigheronlineexposure,includingclothing,cosmetics,homeappliances,andrecreationalitems,allexhibitedasignificantdeclinecomparedtoMay

nFixedassetinvestmentgrewby3.6%YoYcomparedto3.5%inMay.Infrastructuredeceleratedby0.3pptsto4.6%YoY,likelysuggestingthegovernmentcapitalspendingisstilllaggingonthebackofdeclininglandsalesrevenue.Manufacturinginvestmentstayedlargelyunchangedat9.3%YoY,whilerealestateinvestmentremainedsubduedat-10.1%.

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Figure3:IndustrialproductionandservicesoutputslowedinJune

Figure4:Capacityutilizationrateimprovedslightlyby0.5ppt

35

30

25

20

15

10

5

0

-5

-10

-15

%YoY

Industrialproduction

servicesoutput

'18'19'20'21'22'23'24

Source:DeutscheBankResearch,NBS

Figure5:Retailsalesfurtherslowed

40

30

20

10

0

-10

-20

%,YoYRetailsalesexcl.dining%,YoY

Diningsales(rhs)

120

90

60

30

0

-30

-60

'18'19'20'21'22'23'24

Source:DeutscheBankResearch,NBS

%

100

99

98

97

96

95

94

93

Salesratioofindustrialproducts%

Capacityutilization,rhs

80

75

70

65

'13'14'15'16'17'18'19'20'21'22'23'24

Source:DeutscheBankResearch,NBS

Figure6:Infrastructureandmanufacturinginvestmentdecelerated,andrealestateinvestmentremained

subdued

40

%,YoYManufacturinginvestment

Propertyinvestment

Infrastructureinvestment,excl.eletricity

30

20

10

0

-10

-20

-30

'18'19'20'21'22'23'24

Source:DeutscheBankResearch,NBS

PropertysectordownturncontinuedinQ2despitethenewroundofeasingsinceMay.Housingpricescontinuedtodeclineinboththenewhomeandsecondarymarkets.Housingnewstartshavealsofurtherdeterioratedto30%of2019levels,asdeveloperswerestillstrugglingtofundthem.Propertyinvestmentandsaleshaveappearedstabletosomeextent,potentiallyunderpinnedbygovernmentprojects.AccordingtoNBS,the"threemajorprojects"contributed0.9ppttopropertyinvestmentgrowthinthefirsthalfof2024,indicatinganinvestmentvolumeofRMB50bn.

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Figure7:HousingpricesdroppedfurtherinJune

%,MoMNewhomeSecondarymarket

2.001.501.000.500.00-0.50-1.00-1.50-2.00

'11'13'15'17'19'21'23

Source:DeutscheBankResearch,NBS

Figure8:HousingnewstartsfurtherdeceleratedinQ2whileinvestmentandsalesappearedstable

2019=100Propertyinvestment

——Housingnewstarts

140——Valueofpropertysales

120Ns\

100

80

60

40

20

'17'18'19'20'21'22'23'24

Source:DeutscheBankResearch,HaverAnalytics

Consumerspendingrecoveryfacedheadwinds

EmploymentwasresilientinQ2...Theheadlineunemploymentrateremainedsteadyat5%inQ2andthelargecityunemploymentratefurtherdeclinedto4.9%.Meanwhile,averageweeklyworkinghoursstayedhighatabove48.5.China'smigrantworkerpopulationalsocontinuedtoincreaseby1.6%YoYand2.2%QoQinQ2,reachingahistoricalhighof190million.

...butincomegrowthwasrelativelyweaker.Incomegrowthslowedto4.5%YoYinQ2from6.2%inQ1,amongwhichsalaryincomedeceleratedthemostby2.4pptsto4.4%YoY.Migrantworkermonthlyincomealsofellbackslightlyby0.5%QoQ,despiteincreasinghiring.Householdspendingfollowedasimilartrend,slowingby3.3pptsto5.0%YoYinQ2,decliningmoresignificantlythanincomegrowth.Nevertheless,spendinggrowthstilloutperformedincomegrowth.Accordingly,thehouseholdsavingsrateonaseasonallyadjustedbasisstayedlargelyunchangedat31%,andhasyettoreachpre-Covidlevelsof30%.

Figure9:Urbanunemploymentrateremainedsteadyat5%inQ2

%7.0

Urbanunemploymentrate

——Urbanunemploymentrate,31largecities

6.5

6.0

5.5

5.0

4.5

'18'19'20'21'22'23'24

Source:DeutscheBankResearch,NBS

Figure10:Migrantworkerhiringincreased,whilemonthlyincomedroppedslightly

195

190

185

180

175

170

165

160

155

150

Activemigrantworkers,million

yuan

monthlyincomeofmigrantworkers,

'17'18'19'20'21'22'23'24

5000

4500

4000

3500

3000

Source:DeutscheBankResearch,NBS

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15July2024ChinaMacro

Figure11:Householdincomeandspendinggrowthslowed

20

Spendinggrowth

——Incomegrowth

Householdsurvey%YoY

15

10

5

0

-5

-10

20172018201920202021202220232024

Source:DeutscheBankResearch,NBS

Figure12:Householdsavingrateremainedlargelyunchanged

%

Householdsavingsrate,seasonallyadjustedSavingrate

40

35

30

25

20

'17'18'19'20'21'22'23'24

Source:DeutscheBankResearch,NBS

Outlook:4.9%growthin2024callsforadditionalpolicysupport

China'sgrowthisdeceleratingowingtoweaker-than-expecteddomesticdemand.Thishasledustorevisedownour2024GDPgrowthforecastto4.9%(from5.0%).Weexpectgrowthwillstayjustbelow5%inthenexttwoquartersat4.8%inQ3and4.7%inQ4.Our2025growthforecastisunchangedat4.5%.

Policymakersmayneedtostrengthenpolicyeffortstoachievethe5%annualgrowthtarget.Inparticular,aswehavediscussedinourChinaH2Outlook,abudgetrevisionismaybenecessarytokeepupthepaceofspending.Fiscalspendinggrewonly2%inthefirst5months,slowerthanthegrowthoftheeconomy,owingtoadropinfiscalrevenueinparticularfromlandsales.ThePolitburomeetinginlate-Julywillbeakeywindowoftimingforthesignalingofadditionalpolicysupport.

ThePBOCwillcutrateonlymodestly,facingmultipleconstraints.Weexpecta10bpsratecutbythePBOCbeforeend-2024,likelyinQ4.Aratecutremainsnecessaryinlightofsofteningcreditdemandandstilllowinflation,butthePBOCalsoneedstokeepastablecurrencyagainstastill-strongdollar.There'sperhapssomeupsiderisktoourratecutforecastifsoonerandfasterFedratecuts(ourUSeconomistsjustchangedtheirforecast,expecting75bpsofratecutsbeforeyear-end)canhelpeaseRMB'sdepreciationpressure.

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Theviewsexpressedinthisreportaccuratelyreflectthepersonalviewsoftheundersignedleadanalyst(s).Inaddition,theundersignedleadanalyst(s)hasnotandwillnotreceiveanycompensationforprovidingaspecificrecommendationorviewinthisreport.YiXiong.

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