China | Q2 GDP moderated with a more balanced structure

Summary

The Q2 GDP figures together with June real economic indicators confirmed a continuing moderated year on year growth momentum. We anticipate that the growth rate will slowly fall from the previous high level to its long-term potential growth trend in 2H 2021.

Key points

• Key points:
• The Q2 GDP slowed to 7.9% y/y after reaching a record-high 18.3% y/y in Q1 2021. On sequential terms, it expanded to 1.3% q/q from 0.6% q/q in Q1 2021.
• The consumption and manufacturing investment are still weaker-than-expected, although they suggest the supply-demand gap further narrowed. To regain all the lost ground of the demand side, quite a bit of perseverance is still needed.
• Regarding the June economic activities, industrial production, retail sales and fixed asset investment all registered a decelerating year on year growth from the previous month’s readings, in line with our expectations.
• The pent-up domestic demand and persistently good performance of the external sector are likely to underpin the growth in the rest of the year. We maintain our 2021 GDP forecasting at 8.2% y/y.
• On the policy front, although the recent RRR cut in July ignited the markets hope of a loosening monetary policy in 2H 2021, we anticipate a neutral but still accommodative monetary policy stance “without a sharp turnaround” will remain.

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