China: Q1GDP gives further evidence of stabilization - Wells Fargo

According to analysts from Wells Fargo, today’s Chinese growth data offers further evidence that economic activity is stabilizing following a gradual deceleration. “Notable strength in the industrial sector boosted the headline number.”

Key Quotes: 

“Data released today reveal that Chinese GDP grew 6.9 percent in Q1-2017, slightly beating the consensus forecast which called for 6.8 percent. Over the last three quarters, Chinese GDP has grown 6.7 percent, 6.8 percent and 6.9 percent, representing an upward trend that has reversed the previous gradual slide in GDP growth rates.”

“Growth in the secondary industry, which includes mining/quarrying, manufacturing, construction and utilities production, rose to 6.4 percent year over year, following just 6.1 percent the previous quarter. The secondary industry accounts for roughly 40 percent of the value added in the Chinese economy. Growth in the primary industry, which includes agriculture, forestry and fishing slowed to 3.0 percent in Q1 from 3.3 percent in Q4. Likewise, growth in the tertiary industry, or the service sector, slowed to 7.7 percent in Q1 from 7.8 percent in Q4.”

“The Chinese central bank was selling its foreign exchange (FX) reserves in an attempt to slow the depreciation of its currency. As a result, China’s FX reserves receded from nearly $4 trillion in mid-2014 to about $3 trillion today. In January of this year, China’s FX reserves dipped below $3 trillion for the first time since early 2011. However, concerns have started to dissipate after FX reserves reversed their outflows and increased in February and March, albeit at a very modest rate. Moreover, against the backdrop of a Fed that is in the midst of tightening rates, our currency strategy team expects the Chinese renminbi to depreciate, modestly, against the U.S. dollar.”