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World Economy

OPEC Monthly Oil Market Report – September 2017

25

China

China’s economy started 2H17 on a softer note compared with that seen in 1H17. Export growth weakened

amid slower demand in Asia. Real estate activity slowed notably, housing sales were flat compared to last

year while housing starts declined. Overall, industrial value added slowed to 6.4% in July, with the slowdown

in the value added in manufacturing particularly pronounced. Meanwhile, private consumption remained

healthy, with real retail sales up around 10% y-o-y and car sales growth accelerating further.

Private consumption

remained healthy in July, with real retail sales up by 9.6% y-o-y (10% y-o-y in June)

and car sales growth picking up further after the earlier slowdown.

Real estate activity in the smaller cities remained flexible, fuelled by a still-accommodative housing policy.

However, it appears that a less expansionary overall monetary policy stance will weigh on housing sales in

2H17.

Graph 3 - 24: Chinese GDP growth

Graph 3 - 25: Chinese GDP breakdown

CPI inflation

eased slightly last month to 1.4% y-o-y in July of 2017, following a 1.5% rise in June. It was the

lowest inflation rate since April, as the cost of non-food slowed and the cost of food continued to fall. On a

monthly basis, consumer prices edged up by 0.1%, after declining 0.2% a month earlier and slightly below

estimates of a 0.2% rise. Although PPI inflation held steady at 5.5%, trend-wise it eased notably from 7.4% in

1Q17 to 5.8% in 2Q17, and we expect it to continue to ease in 2H17 as the spill-over of price increases in

the heavy industry into other sectors remains limited.

China's trade surplus

fell to $46.74 billion in July of 2017 from $48.61 billion in the same month a year

earlier, but remained above the market consensus of $46.08 billion. Exports rose by 7.2% from a year earlier

to $193.6 billion, down from June's 11.3% growth, while imports rose 11% to $146.9 billion, down from the

previous month's 17.2% gain. As to the export outlook, while global demand momentum has improved

recently, China’s export growth probably peaked in 3Q17, in real terms, and is likely to be more moderate in

2H17. Moreover, downside risks to exports remain, in particular in the area of US-China trade relations

following strong growth in Chinese exports to the US (a full 11% increase y-o-y in 1H17 and remaining solid

at 9% y-o-y last month). This, along with ongoing US-North Korea tensions, may trigger US trade

protectionist measures against China. The slowdown in China’s economy and imports will make things

difficult for the global economy. Europe and the US will continue to grow but, going forward, growth in the

developed world is unlikely to be strong enough to offset the cooling in China. Global trade growth peaked in

1Q17, when China’s import growth was at its strongest, and will ease in the second half of this year.

6.96.9

7.3

6.9

6.7

6.0

6.4

6.8

7.2

7.6

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

2014

2015

2016 2017

Sources: China's National Bureau of Statistics and

Haver Analytics.

% change y-o-y

4.4

2.3

0.3

-2

0

2

4

6

8

10

1Q 14

2Q 14

3Q 14

4Q 14

1Q 15

2Q 15

3Q 15

4Q 15

1Q 16

2Q 16

3Q 16

4Q 16

1Q 17

2Q 17

Net exports of goods and services

Gross capital formation

Final consumption expenditure

Sources: China National Bureau of Statistics and

Haver Analytics.

% change y-o-y