China GDP in Second Half 2014 May Come in Below 6%!!!

September 15th, 2014
in News, econ_news, syndication

breaking-news-130px7Econintersect:  The official target for GDP growth for China is 7.5% in 2014.  In the first half of the year GDP growth came within a whisker  of that result with year-over-year GDP growth of 7.4% in Q1 and 7.5% for Q2.  That level of performance has been thrown into real doubt for the second half of the year since Industrial Production (IP) rose by only 6.9% in August, year-over-year, well below the expections of economists polled by Reuters.  Fixed asset investment and retail sales also came in below expectations.  This shortfall is very significant because IP has historically been a very reliable indicator for China's GDP.

Follow up:

The expectation for IP in August had been 8.8% growth, which was the average for the first seven months of the year.

china-ip-2014-sep-14

The latest number is the lowest since the depths of the Great Recession in the first half of 2009.

china-ip-2008-2014-sep-14

Comparing the IP graph above and the GDP graph below the problem for China achieving its growth target is immediately evident.  IP has always led GDP by a healthy amount, at least back through 2008. Starting with 2010 Econintersect has calculated the following relationships:

  • 2012 through 2Q 2014 - IP has exceeded GDP by an average of 2.0%, with the smallest margin 1.3%.
  • 2010-2011 -  IP exceeded GDP by an average of 4.4%, with the smallest margin 1.3%.

Unless the August IP number is a one-off anomaly, the second half expectation for GDP is well below the government target of 7.5% growth.  If September IP growth were to come in at 7% the expected 3Q GDP growth would be 5.7% (6.4% max possible based on historical relationship).  If the three months of the fourth quarter were to average 7% IP growth the expected 4Q GDP growth would be 5% (5.7% max possible).  Note:  These estimates are made using the most recent 10 quarters of  data.  If the data from the beginning of 2010 is included then the average expectations for GDP would about 1% lower (4.7% 3Q and 4.0% 4Q).

china-gdp-2008-2014-sep-14

What kind of global economic turmoil might ensue if China's GDP growth were cut by 20-40% in the second half of 2014?  We may well find out if the August IP growth reading of 6.9% is not an anomaly and is repeated going forward.

Sources:

 















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