China: Third quarter GDP growth likely slowed to 4.4% year-on-year – Standard Chartered

The manufacturing PMI rose to 49.8 in September, while the average reading remained below 50 in the third quarter. Net exports are likely to have remained a key contributor to growth in the third quarter; real activity growth may have slowed. We lower our third quarter GDP growth forecast to 4.4% year-on-year (4.9% previously) due to weak domestic demand. We raised our fourth quarter GDP growth forecast to 4.8% year-on-year (4.4% previously) to reflect recent steps in policy support, say Standard Chartered analysts Hunter Chan and Shuang Ding.

Quick policy response after weak third quarter performance

“China’s official manufacturing PMI rose to 49.8 in September from 49.1 in August, beating market expectations, as manufacturing activity recovered with improving new orders. Meanwhile, the average manufacturing PMI fell 0.4 points to 49.4, remaining below 50 for the sixth consecutive quarter. Industrial production (IP) may have accelerated due to seasonal factors, normalizing after the impact of the weather.”

“Domestic demand weakened in September, with the services PMI falling to 49.9, below 50 for the first time since late 2023. The average services PMI for the third quarter fell to 50, indicating stagnant performance, which resulted in continued deflationary pressure. CPI inflation may have declined in September due to lower food price growth and falling utility and fuel prices. Additionally, CPI deflation may have peaked. deepest in five months, with 2.5% year-on-year in September.”

“The goods trade surplus is likely to have widened in the third quarter, continuing its contribution to growth and partially offsetting the drag of China’s prolonged housing market downturn. Quarter-on-quarter real GDP growth likely remained below 1 % in the third quarter. The September Politburo meeting showed a more pro-growth policy stance and the People’s Bank of China (PBoC) hinted at a more moderate monetary policy. We maintain our 2024 GDP growth forecast at 4.8%, with upside risk if disproportionate fiscal measures are announced. The government may issue additional bonds to meet its budgeted fiscal spending and expand the use of special bonds to reduce housing inventory and mitigate debt risks.”