China released some ugly economic data this week.
GDP expanded 7% year-on-year, below the 7.3% pace of Q4 2014 and in line with expectations. On a quarter-on-quarter basis, this was even weaker, rising 1.3% versus expectations for an increase of 1.4%.
Other economic data from the world’s second-largest economy also point to a 2009-like slowdown.
But Deutsche Bank sees these as growing pains. Here’s what the firm wrote in a weekend email briefing to clients:
“Like a pubescent teenager, China’s economy has pimples but they merely indicate the economy is growing up. This week’s data showed output growth slowing to seven per cent while industrial production grew at its slowest rate since 2008. But do not be put off by appearances. Over the last 35 years, the contribution of China’s service sector to output has doubled to 46 per cent. With agriculture now contributing a steady tenth, if high-value services are to expand, industry has to move aside. This is what developing countries want, especially as wages rise (China accounted for half the world’s two per cent growth in real wages in 2013). While service PMI has slowed, it remains comfortably in the low-50s. Assuming these trends continue, the current share and property market bubbles may also ultimately prove pimples on a maturing economy.”
On Friday, Chinese stock futures fell by more than 5% on news that regulators banned trading with certain types of borrowed money.
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