China: Recovery Continues to Strengthen
On balance the November data released so far suggests that the recovery in China remains on track supported by improving domestic demand. We maintain our forecast that GDP growth is set to accelerate to 7.8% y/y in Q4 from 7.4% y/y in Q3, but there now appears to be some upside risk to our forecast. We maintain our above-consensus forecast of 8.6% GDP growth in 2013.
While the headline investment data disappointed slightly, the overall investment picture still appears to be improving, supported by increasing infrastructure spending and continued recovery in the residential property market where sales of new homes and housing starts improved markedly in November.
Although the volatile foreign trade data disappointed in November, exports still appear to be recovering moderately as suggested by the recent improvement in new orders in the manufacturing PMIs. However, exports to Europe remain very weak, while exports to other emerging markets in Asia are strong. The external development is the biggest short-term risk for China.
Inflation increased from 1.7% y/y to 2.0% y/y largely due to higher food price inflation. Core inflation eased and we expect inflation to drop below 2% y/y again in December. At this stage, inflation is no big concern although we expect it to edge higher next year.
Growth picked up the pace in November
The data for November released on Sunday and this morning confirms that the Chinese economy continues to recover. November is the third month in a row in which the hard data has consistently shown an acceleration in growth.
IMOH, Clement I
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