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China: Signs of services growth amongst slowing manufacturing and real estate - NAB

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Nov 12, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Delhi) - Gerard Burg, Senior Economist at NAB, notes that in China’s ‘old economy’ – manufacturing & real estate – continue to slow, but still there are visible signs of services growth.

    Key Quotes

    “China’s service sector has been the main contributor to economic growth in recent times – particularly as trends in the industrial sector continue to weaken. In Q3, the secondary industries – manufacturing and construction – provided the lowest contribution to GDP since the GFC – while services (led by finance) maintained fairly stable growth.”

    “The weakness in the ‘old economy’ remains evident – industrial production slowed further in October, while investment continued to trend lower (albeit recording marginally stronger growth than in September) – led by contractions in the real estate sector (where new construction activity remains weak).”

    “Industrial weakness is also evident in trade data, with import values falling in October – driving the trade surplus to record levels. Falling commodity prices remain a key driver of this trend.”

    “In stark contrast to the weakening in the industrial sector, China’s real retail sales edged higher to 11% yoy – a signal to the stronger performance in services. Consumer confidence also improved in the most recent reading in September. Despite the slowing economy and the impact of the mid-year equity market crash, confidence has remained in positive territory since the end of 2013.”

    “As expected, the People’s Bank of China cut interest rates in late October, bringing the benchmark one year lending rate down to 4.35%. Given the comparatively high rate – when compared with policy rates in advanced economies – the PBoC has considerable scope for further monetary policy easing. We expect two further cuts in H1 2016 – to bring rates to 3.85% by mid year. Further cuts to the Required Reserve Ratio will also be likely to ensure adequate liquidity remains in financial markets.”
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