Guo Lei, Chief Economist of GF Securities
The following views are compiled from Guo Lei's speech at the China Macroeconomic Forum (CMF) Macroeconomic Monthly Data Analysis Conference (October 2021) (Issue 50).
Number of characters: 1254 characters
Reading time: 3 minutes
In the general direction, the economy is still in a process of slowing down in the next three to four quarters, and there may be two stages of slowdown.
The first phase is in the second half of this year. The main driver is the decline in real estate sales. In the third quarter of this year, the economy experienced supply shocks such as double reduction, double control, epidemic, flood conditions, etc.; but considering the downward impact of real estate sales, even without these supply shocks, the economy will have a slowdown process. Real estate sales in the 30 cities fell from 550,000 to 600,000 square meters before August to about 420,000 square meters in August and September, and the average daily average of 420,000 square meters from October 8 to 18 was also at the bottom of 420,000 square meters. The downturn in real estate sales will be transmitted to the economy through several aspects, one is durable consumer goods, the other is upstream construction materials and other industries, and the third is to affect the local financial balance through land transfer fees. So the downward pressure of the first phase of the economy mainly comes from here. This year's export industry has performed well, and it will not face greater pressure during the year, and the pressure will mainly come from next year. Historically, there is a good correlation between exports and PPI cycles. This correlation is not only manifested in the fact that the export with the PPI containing the price, but also the PMI export order is roughly synchronized with the PPI cycle. This is mainly affected by the overseas import cycle, overseas imports and manufacturing inventories are synchronized, manufacturing inventories in turn affect imports, so export pressure will rise in the first half of next year, which will bring about a second phase of economic slowdown.
In the process of two-stage slowdown, some areas may be slightly different, compared with the fourth quarter and the first half of next year, the pressure on the supply side will be reduced, and consumption and upstream manufacturing will pick up compared with the third quarter. For example, the average month-on-month growth of consumption before the epidemic was basically stable at about 0.7, and the average monthly growth rate of the first half of this year after the epidemic was about 0.4. The decline is mainly due to the increase in social distancing caused by the normalization of prevention and control, the shortening of residents' living radius and the reduction of consumption scenarios, but the overall consumption in the third quarter remained at a low position. Due to the relative concentration of supply shocks, the consumption in July, August and September was relatively stable month-on-month, -0.2, 0.2 and 0.3 respectively, and it is expected that consumption in the fourth quarter and the first half of next year will be slightly higher than the level of the third quarter, and it is expected to return to the state of 0.4.
The GDP in the first three quarters averaged 5.0, 5.5 and 4.9 in the two years, and the main reason for the rapid decline in the third quarter was the strong internal and external strength in the first half of the year, and the decline in real estate sales in the second half of the year, and the supply impact brought about by the superposition of the two. It is estimated that the real GDP growth rate in the fourth quarter may fall back to the 4.0 to 4.7 range, and the corresponding GDP average is about 5.2 to 5.6 in two years, higher than the level in the third quarter of this year, but the overall may be lower than the first half of the year. The two-stage slowdown pattern next year is still unlikely to change.
Economic development trends are mainly transmitted to policies through two variables, finance and employment. Property sales fell in the third quarter and fiscal pressure rose, but employment data was acceptable. Historical experience shows that employment and external demand are highly correlated. The external demand industrial chain is the most intensive industrial chain to absorb employment, if the external demand pressure increases next year, the employment pressure will increase. When the Central Economic Work Conference at the end of this year lays out next year's economic policies, it may deploy more comprehensive measures to stabilize growth. From the perspective of policy space, there is theoretically the following space: First, fiscal policy has been launched late this year. The rhythm of the second half of the year is quite different from before, and the northern winter has basically entered a state of shutdown. Next year's fiscal policy can be pre-positioned to a certain extent, such as raising the fiscal rhythm at the beginning of the year, which will form a connection with this year's fiscal back-up. Second, during the "14th Five-Year Plan" period, certain policy guidance can be given to long-term rental housing investment. The real estate industry always has to drive the construction industry, in the past it was shantytown transformation, and in the future it can be affordable housing such as long-term rental housing. Third, in theory, the scale of investment in the field of double carbon is large, and the current policy is also formulating a carbon neutral "1 + N" policy system, and the investment in the field of double carbon should be expanded after this policy system comes out. Fourth, past experience shows that there are not many consumer areas that can be promoted, mainly concentrated in durable consumer goods such as automobiles and home appliances.