China's growth ebbed in the third quarter while inflation edged just a touch higher, showing that the world's second-largest economy was strong but far from overheating and suggesting that an interest rate rise this week may be enough for now.
Although the suite of data published on Thursday was broadly in line with forecasts, the numbers in fact were something of a downside surprise after market chatter that growth and inflation had been much stronger than expected, prompting the surprise rate increase.
"Chinese officials are likely feeling quite pleased with the way the data are playing out," said Brian Jackson, an economist with Royal Bank of Canada, in Hong Kong.
"Policy measures put in place earlier this year appear to have helped steer the Chinese economy through a middle course between overheating and a serious downturn."
Economic growth slowed to 9.6% in the third quarter from a year earlier, down from 10.3% in the second quarter, according to the National Bureau of Statistics. The consensus expectation was a 9.5% pace.
Inflation rose in September to 3.6%, reaching a 23-month high and smack in line with forecasts.
But industrial output — a key indicator of growth momentum — slowed to a 13.3% year-on-year increase, missing forecasts of a 13.6% rise.
"The GDP figure gave the central bank confidence to raise interest rates," said Nie Wen, an economist with Fortune Trust in Shanghai.
But Nie added that further rate increases would likely wait until next year.
"Most other countries are now implementing loose monetary policies, like the United States, so it is not good for China to raise interest rates again," he said.
POLICY CONSISTENCY
In a statement accompanying the release of the data, the statistics agency said China would maintain policy stability and consistency, while also making measures more targeted and flexible — code for minor adjustments rather than wholesale abandonment of monetary policy that the government still describes as "appropriately loose".
The Shanghai stock market fell back as investors digested the data. The Australian dollar, which is sensitive to Chinese demand, ticked up slightly, supported by the view that the economy was performing as expected.
"The general fundamental picture explains China's decision to hike interest rate two days ago," said Dongming Xie, China economist at OCBC Bank in Singapore.
"September may not be the peak for consumer inflation based on our projection."
Yet inflation is not broad based. Food prices, which account for a third of China's consumer price index, rose 8.0% year on year in September, while core non-food inflation slowed to 1.4% from 1.5% a year earlier.
China's increase of interest rates on Tuesday was an attempt to keep a lid on inflation expectations and cool asset markets, but it also reflected the government's growing confidence in the solidity of the economic recovery.
Because the rate rise — the first in nearly three years — was so unexpected, many in the market had assumed that the GDP and inflation figures would surprise on the upside.
In this cycle of growth, it appears that the Chinese economy peaked in the first quarter, when it expanded 11.9% year on year.
Much of the slowdown can be explained by a higher base of comparison after last year's stunning rebound from the global financial crisis. It also is a desired outcome for the government, which has gradually normalised fiscal and monetary policy following the massive stimulus programme that powered the recovery.
