China’s economy dips in third quarter
China’s economic growth cooled to its weakest pace since the global financial crisis in the third quarter.
The regulators have pledged further policy support as a years-long campaign to tackle debt risks and the trade war with the United States began to bite.
Chinese authorities are trying to navigate through numerous challenges, as the trade war fears have sparked a blistering selloff in domestic stock markets and a steep decline in the value of the yuan versus the dollar, heightening worries about the growth outlook.
The economy grew 6.5 per cent in the third quarter from a year earlier, slower than 6.7 per cent in the second quarter, the National Bureau of Statistics said on Friday.
Analysts polled by Reuters had expected the economy to expand 6.6 per cent in the July-September quarter.
The GDP reading was the weakest year-on-year quarterly growth since the first quarter of 2009 at the height of the global financial crisis.
“The trend of slowdown is strengthening despite Chinese authorities’ pledge to encourage domestic investment to support the economy.
Domestic demand turned out weaker than unexpectedly solid exports,” said Kota Hirayama, senior emerging markets economist at SMBC Nikko Securities in Tokyo.
After another big decline in Chinese stocks on Thursday, policymakers sought to soothe markets with central bank governor Yi Gang saying equity valuations are not in line with economic fundamentals.
Yi and senior regulators pledged targeted measures to help ease firms’ financing problems and encourage commercial banks to boost lending to private firms.
The Shanghai Composite index, which slumped more than one per cent in early trade, bounced back following the comments to be virtually flat at the midday break.
Third quarter growth was dragged down by the weakest factory output since February 2016 in September as automobile makers cut production by over 10 per cent amid a sales slowdown.
“The 6.5 per cent figure is definitely below our consensus expectations.
“Weakness is largely coming from the secondary industry- most notably manufacturing. We may review our Q4 forecasts,” said Betty Wang, senior China economist at ANZ in Hong Kong.
On a quarterly basis, growth slowed down to 1.6 per cent from a revised 1.7 per cent in the second quarter, in line with expectations.
Importantly, second quarter sequential growth was revised down from the previously reported 1.8 per cent, suggesting the economy carried over less momentum into the second half than many analysts had expected.
Recent economic data have pointed to weakening domestic demand with softness across factory activity to infrastructure investment and consumer spending, as a multi-year crackdown on riskier lending and debt has pushed up companies’ borrowing costs.
Before the data release, economists had expected China’s full-year growth to come in at 6.6 per cent this year – comfortably meeting the government’s 6.5 percent target – and 6.3 per cent next year.
But now some say growth could slow even more dramatically next year.
“Looking ahead, the economic outlook is not optimistic with exports facing further headwinds as U.S. tariffs kick in and demand from emerging countries ebbs. GDP growth is likely to slow to 6.0-6.2 per cent next year,” said Nie Wen, an analyst at Hwabao Trust Shanghai.
China’s once high-flying automakers are now feeling the brunt of weaker consumer spending. Data last week showed car sales fell the most in nearly seven years in September.
GM saw sales fall 15 per cent in the month and Volkswagen sales were down 10.5 per cent.
Beijing and Washington have slapped tit-for-tat tariffs on each other in recent months, sparked by U.S. President Donald Trump’ demands for sweeping changes to China’s intellectual property, industrial subsidy and trade policies.
Plans for bilateral trade talks to resolve the dispute have stalled, triggering a domestic equities rout and putting pressure on China’s already softening economy and weakening currency.
China’s exports unexpectedly kicked into higher gear in September, largely as firms front-loaded shipments to dodge stiffer U.S. duties, though analysts see pressure building in coming months.
“We expect an adverse impact from the trade tension will appear more clearly in data after the start of new year,” SMBC Nikko Securities’ Hirayama said.
Separate data on Friday showed China’s factory output growth weakened to 5.8 per cent in September from a year earlier, missing expectations while fixed-asset investment expanded at a slightly faster-than-expected 5.4 per cent in the first nine months of the year.
Infrastructure investment rose 3.3 per cent year-on-year for Jan-Sep, slower than 4.2 per cent growth in the first eight months of the year.
Retail sales rose 9.2 per cent in September from a year earlier, bouncing back after several months of lackluster growth.
Faced with a cooling economy, stock market wobbles and a yuan currency under pressure, policymakers are shifting their priorities to reducing risks to growth by gradually easing monetary and fiscal policy.
Last week China’s central announced the fourth reserve requirement ratio (RRR) cut this year, stepping up moves to lower financing costs.
And more support steps look likely, analysts say, as China starts to bear the full brunt of the trade dispute with the United States.
“China is pulling on all the levers to support domestic demand in the face of this trade pressure. There’s already a big acceleration in lending underway and now the PBOC is announcing new steps.”
“In the end, China will do what it takes to safeguard their economy and show the U.S.: ‘Hey, we don’t need you.” (Reuters/NAN)
Oil prices nudged higher on Friday on signs of surging demand in China, the world’s second-biggest oil user.
Although prices are set to fall for a second week amid concerns of the ongoing Sino-U.S. trade war is limiting overall economic activity.
Brent crude oil futures were trading at $79.51 per barrel at 0521 GMT, up 22 cents, or 0.3 per cent, from their last close.
U.S. West Texas Intermediate (WTI) crude futures were up 19 cents, or 0.3 per cent, at $68.84 a barrel.
For the week, Brent crude was 1.1 per cent lower while WTI futures were down 3.5 per cent, putting both on track for a second consecutive weekly decline.
Refinery throughput in China, the world’s second-largest oil importer, rose to a record high of 12.49 million barrels per day (bpd) in September as some independent plants restarted operations after prolonged shutdowns over summer to shore up inventories, government data showed on Friday.
The refinery consumption may rise through the fourth quarter as several state-owned Chinese refiners return to service after maintenance.
Undermining the strong refinery data, China did on Friday report its weakest economic growth since 2009 in the third quarter, with gross domestic product expanding by only 6.5 per cent, missing estimates.
The weak economic data raised concerns that the country’s trade war with United States is beginning to have an impact on growth, which may limit China’s oil demand.
The trade war concerns combined with surging U.S. oil stockpiles reported on Thursday are capping the day’s price gains.
U.S. crude stocks last week climbed 6.5 million barrels, the fourth straight weekly build, almost triple the amount analysts had forecast, the U.S. Energy Information Administration said on Wednesday.
“EIA Weekly Petroleum Status Report was a complete shocker sending Oil markets spiraling lower amidst some concerning development for oil bulls,” said Stephen Innes, head of trading APAC at OANDA in Singapore.
Inventories rose sharply even as U.S. crude production slipped 300,000 barrels per day (bpd) to 10.9 million bpd last week due to the effects of offshore facilities closing temporarily for Hurricane Michael.
Meanwhile, Iranian oil exports may have increased in October when compared to the previous month as buyers rush to lift more cargoes ahead of looming U.S. sanctions that kick in on Nov. 4.
An unprecedented volume of Iranian crude oil is set to arrive at China’s northeast Dalian port this month and in early November before U.S. sanctions on Iran take effect, according to an Iranian shipping source and data on Refinitiv Eikon.
So far, a total of 22 million barrels of Iranian crude oil loaded on supertankers owned by the National Iranian Tanker Co (NITC) are expected to arrive at Dalian in October and November, the data showed.
Dalian typically receives between one million and three million barrels of Iranian oil each month according to data that dates back to January 2015. (Reuters/NAN)
the euro hovered near a one-week low against the dollar on Friday as the European Commission’s criticism of Italy’s populist budget sparked fresh concerns about political tensions in the common currency zone.
The dollar index, a gauge of its value against major peers, was 0.05 per cent higher at 95.96 on Friday, having closed on Thursday at its highest level since Aug. 21.
That rise was driven by a steep fall in the euro on Thursday, which constitutes around 57 per cent of the index.
The euro was relatively flat at $1.1454 on Friday, steadying slightly after losing 0.4 per cent overnight.
The single currency hit its lowest intra-day level of 1.1447 since Oct. 9 on Thursday after the European Commission said Italy’s 2019 budget draft is in serious breach of European Union budget rules.
The Commission said in a letter to Italian Economy Minister Giovanni Tria, that planned government spending was too high, the structural deficit – excluding one-offs and business cycle effects – would rise instead, not fall, and that Italian public debt would not come down in line with EU rules.
This has sparked investor concerns about more political tensions in the EU between Brussels and member states, which has hurt the euro.
The gap between Italian and German 10-year bond yield spreads hit its widest level in 5-1/2 years after news of the Commission letter broke.
Italy’s prime minister defended the nation’s free spending budget, though markets were not impressed.
“The euro decline reflects the build up of political tension in the eurozone,” said Sim Moh Siong, currency strategist at Bank of Singapore.
“The next support for the euro is at 1.1430, a break of which can take us down to 1.13.”