Strong Q3 Growth
While most of the developed economies in the world continue to see negative growth figures as the COVID pandemic wears on, China has bucked the trend. Given that the virus originated in China, you would be forgiven for thinking that it must have suffered the brunt of the economic damage. However, the latest growth data released this week showed that over Q3, the world’s second largest economy bounced back with a GDP increase of 4.9%, extending gains from Q2’s 3.2% reading.
Data Improving Broadly
This Q3 pickup reflects a solid increase in activity and a strong recovery from the -6.8% growth seen over Q2 during the height of the pandemic. The decline in activity during that period marked the first time China recorded negative growth since the country began recording data in 1992. The GDP reading echoes some of the other positive data releases we have seen from China recently with September exports seen growing by 9.9% and imports by 13.2% year on year. While the economy is still well below pre-pandemic levels (China has averaged around 9% annual growth over the last 20 years) the data is highly encouraging.
The strong recovery in China is due in part to the effective way in which the country handled the virus. The Chinese government implemented a thorough, nation-wide lockdown immediately and employed mass testing. Even now, at the first sign of any new cases, whole cities and regions have been plunged back into lockdown and subject to strict testing. The stringency of the official response to the pandemic has helped China get a handle on the infection, allowing the broad majority of the economy to operate as normal.
Alongside the government’s response in terms of managing the health and safety aspect, the PBoC has initiated huge amounts of easing over the year to support the economy, in sync with broad fiscal measures from the government, which have helped buffer the economy against the damage caused during the height of the pandemic.
Further Growth Seen Over Q4
Looking ahead, Chinese activity looks set for another boom this quarter. Given that international travel is still highly restricted, millions of Chinese citizens have been travelling and spending domestically during this year’s Golden Week holiday. The Ministry of Culture and Tourism has reported over 600 million domestic trips, generating over 450 CNY in revenue which will provide a firm boost to Q4 growth.
From a technical viewpoint. The breakdown below the rising trend line from 2020 lows continues to gather pace with price taking out several key levels. Price has recently broken down below the 6.6748 level support and while below here, the market looked primed for a test of the 6.5695 level next.
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