Chinese GDP Misses for Q3

Alan Penny

18 October 2019

3 min read

  • Anticipated 6.1%, 6.0% actual
  • Slowest sense Q1 of 1992
  • The trade war influence

China released its Q3 GDP figures on Friday, stating that the mainland economy grew by 6% from a year earlier. The reading is the slowest GDP gain for China in 27-and-a-half years. The trade war with the United States seems to be taking its toll, as Q2 numbers were just up 6.2% from a year earlier, which was also slightly lower than anticipated. The Chinese GDP for Q1 in 2018 was as high as 6.8% and has fallen steadily since the trade war started with the Americans.

This is a very serious downtrend, as although these numbers are the envy of most large economies, the reality is that China is particularly unique in its ability to put out large numbers. Being the major manufacturing center for the world will give that benefit.

The trade war

The trade war is very negative on Chinese growth as the relentless tariffs by the Americans seem to be running like clockwork. On the other side of the equation, China’s largest customer is struggling as well, with the European Union quite likely heading into a recession. If that’s going to be the case, then demand for Chinese goods will be dropping from both sides at the same time.

Donald Trump knows this and seems to be more than willing to continue the fight. That could send Chinese GDP numbers even lower over the longer term, as there has been so much in the way of trouble appearing in the mainland for quite some time, even before the trade war began. This is simply an exacerbation of underlying issues with credit, demand, and rising wages.

Global influence

The global influence of the Chinese economy cannot be overstated. It is considered to be the growth engine of most of the world, and if it starts to fail, that could send the rest of the world into a recession. There are many pundits out there now calling for a global slowdown, and China will be one of the first places to suffer from that.

With the European Union looking soft, the United States is ironically in a position to carry the rest of the world. In a sense, as these figures come out, they show that perhaps the Americans have more power in the trade negotiations than originally suggested. Unfortunately for the Chinese, they are dealing with a negotiator, not a lifetime politician. This should only augment the issue going forward.

The global influence of the Chinese economy cannot be overstated

The global influence will be felt in stock markets around the world as well as in certain commodity markets. The crude oil markets will certainly have a weight around their neck, while the precious metals markets may continue their uptrend. At this point, traders will be paying close attention to GDP figures coming out of China. When we get the next quarterly report in three months, this should be crucial for stock markets worldwide.

Written By
Alan Penny

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