China’s Q3 GDP grew 4.9% as it continues to recover from COVID-19
Posted by David Chao
Global Market Strategist, Asia Pacific ex Japan
China’s Q3 GDP missed estimates +4.9% y/y (vs consensus +5.5% y/y) – looking deeper, the monthly economic data as measured by industrial production and retail sales actually handily beat estimates. The Q3 GDP miss is slightly disappointing although I think the estimate was too lofty to begin with – what’s important to assess is whether the quarterly GDP data continues to show a sequential improvement, which it did, growing from 3.2% in Q2 to 4.9% in Q3. This meaningful delta in the growth rate signals that the world’s 2nd largest economy continues to be on the right V-shaped recovery path.
| Economic data | Actual (y/y) | Consensus (y/y) | Previous (y/y) |
| Q3 GDP | +4.9% | +5.5% | +3.2% in Q2 |
| Industrial output (Sept) | +6.9% | +5.8% | +5.6% in August |
| Retail sales (Sept) | +3.3% | +1.6% y/y | +0.5% in August |
| Fixed Asset Investments (FAI) | +0.8% Jan - Sept | +0.9% Jan - Sept | |
| Property investment | +5.6% Jan - Sept | +5.2% Jan - Sept | |
| Jobless rate (Sept) | 5.4% | 5.5% | 5.6% in August |
Source: Bloomberg, as of Oct 19, 2020
Today’s economic print highlight is in the September monthly data – which shows that the economy’s 3 key growth propellers are finally simultaneously starting to fire: manufacturing, investment and domestic consumption. China’s economic growth over the past 2 quarters has been led by the supply side of the economy: manufacturing, trade and exports. As domestic consumption is one of the biggest drivers of economic growth in China, I have been waiting for the monthly retail sales number to pick up - today we got the reassuring confirmation as retail sales grew +3.3% y/y blowing past the consensus numbers of +1.6% y/y.
Considerable growth momentum heading into Q4
Going forward, what’s central is to see sequential improvement in household consumption as measured by things such as monthly retail sales. It’s likely that the consumption rebound continues to be slow but steady - ramping up over the final quarter and finally giving the economic engine the boost that it needs. It’s significant that this propeller start to meaningfully contribute to the overall growth of the economy as global demand for Chinese goods may wane in the coming months as some of China’s largest trading partners start to go under economic lockdowns due to an unprecedented rise in COVID-19 new infection cases.
Despite the risk of storm clouds gathering on China’s supply side of the economy, I have become incrementally more positive on the Chinese near-term economic outlook because Chinese households are finally starting to show signs of normalized spending behavior. Today’s data is a good reminder that the Chinese economy is the only major economy that will squeak out a positive gain for 2020 and demonstrates that there is considerable growth momentum - aided by the Chinese consumer - heading into the final quarter of 2020 and into 2021.
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