As China’s National Statistics Office announced today, the Chinese economy grew by 7.4% on a year earlier in the third quarter. GDP growth has now slowed for the seventh time in a row. The main factors behind this development were subdued foreign demand and declining investment activity. The European debt crisis is exerting an appreciable drag on the Chinese export sector: in the third quarter nominal exports to the EU were 13.2% down a year earlier. Exports to Germany actually tumbled by 16.5%. Weaker investment momentum stemmed more from construction investment than equipment investment. Investment in real estate in the first three quarters rose by “only” close on 14% on a year earlier. In the corresponding period a year earlier growth had been almost twice as high. The declining momentum is by no means bad news. It is part of the necessary adjustment process in the overheated real estate market.
All told, we are mildly positive about today’s numbers. Third-quarter GDP growth was only marginally lower than in the second quarter. At the same time, hard indicators on industrial production and retail sales, for instance, have been showing modest signs of improvement at the end of the third quarter. And leading indicators such as the purchasing managers’ indices for the manufacturing sector have been pointing at least slightly upwards of late. Overall, therefore, we see the Chinese economy on course for a soft landing and expect growth to accelerate in the current quarter, helped by a still moderately expansionary economic policy. For 2012 as a whole we have revised our growth forecast for the Chinese economy down marginally from 8% to 7.8%.