China: Behind the (solid) growth numbers

5 min

Real GDP rose by +6.8% y/y in Q1 2018 (similar pace to Q4 2017). Yet, the quarterly growth rate indicates a continued deceleration (+1.4% q/q in Q1, compared to +1.6% in Q4). Looking at the growth breakdown by components (only available on y/y basis), the tertiary sector recorded a slowdown but remained the main growth driver (+7.5% y/y in Q1, after +8.3% in Q4) while the industry gained some momentum (+6.3% y/y, up from +5.7%). Monthly figures suggest that economic expansion may decelerate further in the near term. Apart from retail sales (+10.1% y/y in March), all key indicators slowed down in March, for example industrial production (+6% y/y after +7.2% y/y in Jan-Feb) and investment (7.5% y/y in Q1 after +7.9% y/y in Jan-Feb). Moreover, USD-denominated export growth contracted by -2.7% y/y in March after a +24% y/y surge in January-February. Looking ahead, we expect economic growth to lose further traction as (i) trade frictions with the U.S. should dent the export performance, and (ii) deleveraging policies (e.g. tightened regulation) will hamper debt-intensive sectors (e.g. heavy industries). Euler Hermes forecasts full-year GDP growth of +6.5% in 2018.