Dan Hamilton & Sean Liu
As expected, China’s 2013 second quarter economic growth slowed, recording 7.6 percent compared with 7.7 percent in quarter 1. This data was released July 15th. This is a real growth rate that is a comparison with the same quarter in the prior year. China’s government provides a production-side breakdown of Gross Domestic Product. Primary industries (farming, forestry, fisheries) economic growth was 3.0 percent. Secondary industries (mining, manufacturing, construction) economic growth was 7.6 percent. Tertiary industries (services) economic growth was 8.3 percent. These are all year-on-year growth rates. In China, consistent with their stage of development, manufacturing is still large, implying the Secondary industry share of GDP was the largest at 47.2 percent in quarter 2, compared with a Primary share of 7.5 percent, and a Tertiary share of 45.3 percent.
Referring to quarter-on-quarter economic growth, quarter 2 was 1.7 percent, up slightly from 1.6 percent in quarter 1, but low relative to recent history. The last three quarters have been under two percent, which is not typical for China.
With 7.6 percent during the first half of 2013, the question now is what will China’s economy do in the third quarter? Some analysts are very concerned about a housing/real estate bubble in China, and expect an imminent deflation with significant Macroeconomic impacts. From the four quarterly forecasts that we are familiar with, consensus quarter 3 growth is forecasted to be 7.3 percent. The four forecasters that we are referring to are: UBS, Haver Analytics/Citi Investment, Morgan Stanley, and the Bank of China. These forecasts obviously were obviously built with the idea that the probability of a nasty third quarter real estate crash is relatively low.
What does this mean for China’s trading partners? The effect would likely impact China’s imports from their trading partners, a lower volume. Thus, the forecasted China economic slowdown, a mild one, is likely to have a mild dampening effect on the economies of China’s trading partners.