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An Economist Warns That China Growth Rate Has Fallen Below The Government's Target

shanghai traffic

Chinese economic data disappointed markets in the past few months. Here’s a look at March, April, and May.

In light of this, Societe Generale’s Wei Yao has lowered her Q2 GDP forecast to 7.4%, down from 7.6%, in a note titled “China Q2 GDP preview: ‘definite deceleration.’

This would bring the growth rate below the government’s annualized target of 7.5%.

Here’s how she arrived at that figure:

‘Taking the production approach to estimate GDP, we can largely rely on industrial production data, which have the highest correlation with GDP among all activity series. Entering Q2, IP growth slowed further to 9.3% yoy in April and 9.2% yoy in May from 9.5% yoy in Q1.

“We expect IP growth to slow further to 9.1% yoy in June. The major reason for such a forecast is the declines in the two manufacturing PMI series. The official PMI reading dropped to a five-month low of 50.1 in June and the HSBC equivalent slid to a nine-month low of 48.3, which points to a fairly soft mum gain for IP. If our forecast for IP growth turns out to be close, the quarterly average rate would be 9.2% yoy, 0.3ppt lower than that during Q1. Applying a simple OLS regression gives us a corresponding estimate of 7.4-7.5% yoy for Q2 GDP growth.”

Of course Yao also factors in the disappointing data we’ve seen so far. She also anticipates that the downward trend in investment will continue. She also adds that the recent export data “presents a big downside risk to our forecast.”

We previously showed how bearish economists are getting on Chinese growth, thanks to this great chart from Bloomberg BRIEF’s Michael McDonough:

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All eyes are on Q2 GDP data which is out July 14, 10 p.m. ET. Consensus is for Q2 GDP to rise 7.5% year-over-year (YoY) and 1.7% quarter-over-quarter (QoQ).

GDP grew 7.7% in the first quarter.

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