... the headwinds to growth are likely to mitigate somewhat in the second half of the year, even as the downward pressure from the weakness of real estate construction remains ...
in services and a relentless change in the relative price in favor of services is the key to rebalancingChina’s economy.
However, since mid-2014 the service sector received a significant boost from the stock market rally and the associated activity. We expect the sharp correction in the stock market will have considerable effect on the turnover in the financial sector, which could shave around 0.2 percentage points or so off GDP growth in the third quarter. Indeed, this may be the most significant channel via which the stock market turmoil impacts the real economy – more significant than wealth effects.
Export momentum was subdued in the second quarter, but, in our view, is not as weak as the official data suggests. And it picked up a bit in June. Meanwhile, according to Royal Bank of Scotland estimates, the momentum of “normal” imports – used in China’s own economy – improved significantly in June, supporting the impression that domestic demand momentum improved in June.
Building on the recent developments, the headwinds to growth are likely to mitigate somewhat in the second half of the year, even as the downward pressure from the weakness of real estate construction remains, meaning that GDP growth should not be much weaker than 7 percent