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China GDP and Industrial production

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The recent slide in the yuan currency with respect to the dollar has slowed. The official rate is being set lower (implies stronger yuan), and it emerged earlier today that major state banks have been buying their currency (and selling dollars) on the spot market. This is seen as an attempt to shore up the currency, which has lost substantial ground through October as the dollar strengthened in the face of economic uncertainty.

It’s also notable that this move comes ahead of the release of key economic data from China, expected tomorrow. China is the first major economy to report quarterly GDP figures, and there is likely to be a lot of attention on it. Q2 was significantly adversely impacted by rolling lockdowns, but those pressures are supposed to have eased in the third quarter. Even though some cities have had lockdowns, they haven’t been in the same length or impacted major industries like the ones in the first half of the year. And the presumption is that companies have adjusted to work around some of the restrictions.

Supporting growth

Additionally, the Chinese government took a series of measures to boost access to capital and to support the domestic market. Therefore, if GDP figures come in below expectations, it could have a larger impact. That’s because it would imply the underlying economy without the support from the government is worse, and that support measures aren’t having as much effect as expected.

Chinese Q3 quarterly growth is expected to accelerate to 3.5% compared to -2.6% prior. This would push the annual GDP growth rate up to 3.4% from 0.4%. That’s below the semi-official target of 5.0% for this year, but still a substantial improvement.

Global implications

China as the world’s largest manufacturing economy is a barometer for economic performance, particularly in the third quarter. Consumer demand around the world increases during the final quarter of the year, which means that Chinese firms ramp up production in the third quarter to fulfill orders. This is necessary to sustain commodity prices.

Chinese September Industrial Production is expected to accelerate to 4.5% annualized growth from 4.2% prior. If the growth comes in line, it likely will support current views of the global economy. But underperformance in this indicator opens up a worrying question: Would slowing Chinese production be due to internal issues, or due to lack of global demand?

Other indications

Chinese September retail sales are expected to drop substantially to an annualized growth of 3.3% compared to 5.4% in August. This despite the expected increase in retail buying ahead of the week-long natural holiday.

China’s September unemployment rate is also expected to tick up to 5.4% from 5.3% in August. That would imply a reversal of the trend seen since the peak of the lockdowns in April, and before the employment situation has returned to prior year levels.

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