SOC GEN: The 'Dark Cloud Of A Housing Downturn' Still Looms For The Chinese Economy

Getty/Julian Herbert

Chinese GDP data for Q2 is out today, and the median market expectation among economists is for annualised growth of 7.4% year on year.

This is a stronger number than might have been expected earlier in the year for the economy whose fortunes are closely linked to that of Australia’s, being our closest trading partner. There has been some gathering momentum in China’s economy in recent months, thanks to some targeted stimulus measures from the Chinese government, such as rail building projects.

Societe Generale is a little ahead of the market, expecting GDP growth of 7.5% for the year. This is a big upward revision to their previous estimate of 7.1%.

But this morning they warn a good number shouldn’t be taken as a sign that China is out of the woods. In their Asia morning call today, the bank wrote to clients:

… better GDP growth in Q2 does not mean lower risk ahead, in our view. The dark cloud of the housing downturn is still hovering over the economy. The latest report from Soufun, a private data provider that monitors property prices in 100 Chinese cities, showed that the average residential property price declined 0.5% mom in June, more than doubling the pace of contraction in the previous month. The survey also indicated that new apartments offered deeper discounts, as developers were eager to boost sales in order to liquidate their inventories. Housing construction and investment data are likely to have deteriorated further in June. As a result, we expect year-to-date fixed asset investment growth to remain at 17.2% yoy, despite a positive base effect and further pick-up in infrastructure investment.

So there’s a lot more to look for in today’s data releases than just the headline figures.

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