On Monday, China will disclose its Q3 GDP figures, the first major economy to publish this important data. Markets will likely pay close attention to the data to gain better insight into the health of the global economy. As the world’s manufacturing center, China’s performance can serve as a proxy for consumer and industrial demand worldwide. After the news from US banks on Thursday, markets are particularly skittish and could use a dose of good news. Or fall further if the data disappoints.
China’s trade figures for the last three months have been mainly better than anticipated. While exports have risen much more than economists had forecast, imports have risen even faster, despite tariffs. This has left China with a smaller-than-expected trade surplus, which could weigh on its overall GDP figure for the quarter.
What Markets are Looking For
The consensus among economists is that China’s annualized Q3 GDP figure will slow to 4.7% from 5.2% in the second quarter. That includes the effect of the eight-day-long Golden Week holiday, which sees much of China’s industrial production shut. The Chinese government has a target of 5.0% growth this year.
A decline in the growth rate could signal that the domestic market is still facing challenges, even as international trade has increased during the same period. China is trying to strengthen its domestic market as part of an initiative to reduce its reliance on external factors. If growth shows slack, markets might react positively, however. That’s because it means the Chinese central government might be further pressured to increase domestic stimulus.
China’s Consumer Problem
Authorities in Beijing are still struggling to get the economy back to full recovery after the Covid-19 pandemic, which soured consumer sentiment. The pandemic coincided with a housing market crash, which has hurt economic confidence. Chinese consumers saw the housing market as a store of value amid uncertainty and have turned to other methods to protect their wealth, including buying gold. China is the world’s largest importer of gold, which weighs on its growth figures.
As a sign of sluggishness in the domestic economy, China’s inflation rate keeps falling into negative territory. Chinese consumers are reluctant to spend, weighing on internal demand and stymying the central government’s efforts to stimulate the domestic economy.
The Global Effects
While this affects countries that export consumer or industrial goods to China, such as New Zealand and Germany, other commodity exporters have been less affected. China’s strong export growth has led it to continue importing raw materials, such as iron ore, copper, and petroleum. This has been one of the contributing factors for keeping the AUD stronger even as the RBA moves to cut rates.
Economists warn that China’s economy is decelerating amid rising deflationary pressure. The upshot for markets is that the primary tool for addressing a situation like that is stimulus and lower rates to boost inflation and consumer demand. If that were to happen, then economies that export to China could see their currencies supported.