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China GDP preview: Signs of stabilisation? - Nomura

FXStreet (Bali) - Ahead of today's China GDP event, Nomura maintains its call for GDP growth at 6.7% for Q3 and 6.4% for Q4, slowing further to 5.8% in 2016.

Key Quotes

"Our read of the September high-frequency “pulse” data released so far suggests still weak production and investment growth, while consumption and retail sales may have turned better."

"Positive signs: Export growth experienced a smaller year-on-year decline in September than August, while ordinary imports excluding key commodities also turned slightly better. Moreover, year-on-year growth of auto sales turned positive after falling for five consecutive months, following some policy easing measures."

"Negative signs: Railway freight growth, which is highly correlated with industrial output growth, fell to -16.4% y-o-y in September from -15.3% in August. Also, the amount of coal consumed by six major power plants contracted year-on-year in September and October (first 16 days) after a short rebound in August. Steel prices are down about 27% y-o-y."

"Overall, our verdict is that economic growth is still weak and, while there are some tentative signs that growth could stabilise in coming months, there is no sign of a durable rebound."

"The data are largely consistent with our forecast of relatively stable but still weak production growth (5.9% y-o-y in September from 6.1% in August) and investment growth (10.7% y-o-y ytd from 10.9%), while retail sales may have turned slightly better (11.1% y-o-y from 10.8%)."

"We maintain our GDP growth forecast of 6.7% for Q3 and 6.4% for Q4, slowing further to 5.8% in 2016. Given the lacklustre growth outlook, we continue to expect a moderate fiscal stimulus from the central government and continued monetary easing, with one more reserve requirement ratio cut in Q4 and another four in 2016 (50bp each), together with two more 25bp benchmark interest rate cuts in 2016."

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