China: Decent growth in Q1, but risks ahead – Standard Chartered

China’s economic growth remained firm in the first quarter of 2018 a GDP growth expanded to 6.8% y/y in Q1, maintaining the steady pace of Q4-2017, notes the research team at Standard Chartered.

Key Quotes

“Industrial production (IP) grew 6.8% y/y and services production expanded strongly by 8.1% y/y, likely supported by robust external demand, stable consumption and a resilient services sector. We see upside risk to our annual GDP forecast of 6.5% due to the solid Q1 reading, although we still expect growth to decelerate over the rest of the year on slower investment growth, deleveraging, and intensifying trade friction between China and the US.”

“Q1 growth was driven largely by domestic demand. Consumption remained the biggest driver of growth, contributing 5.3ppt, while investment contributed 2.1ppt.”

“Given that deleveraging and the prevention of financial risks remain in focus, we expect soft deleveraging, with the debt-to-GDP ratio rising at a slower pace this year. We also expect further tightening of regulations in the financial sector and on local government debt this year to weigh on economic growth.”