China’s economic growth likely to have decelerated further in Q2

China’s economy is likely to have slowed further in the second quarter of 2016. According to a Societe Generale research report, the GDP growth is likely to have slowed to 6.5 percent in the second quarter from first quarter’s 6.7 percent in year-on-year terms. But the deceleration is possibly due to slowdown in the service sector, while quarterly industrial production growth would possibly be unchanged at around 5.8 percent year-on-year.

“Especially in nominal terms, the deflator of the old economy likely rose notably in Q2, judging from the improvement in PPI over the quarter,” said Societe Generale.

China’s statistics bureau has altered its GDP measurement to include R&D that led to an upward revision of last year’s GDP figure by 1.3 percent. The updated method is expected to have just a slight effect on the second quarter growth reading.

Meanwhile, the activity data as a whole for the month of June is not expected to dispel much concern regarding China’s near-term growth outlook. Retail sales, fixed asset investment and industrial production are likely to have slowed in the month. Negative base effects are partially responsible for the expected slowdown in all the three cases, added Societe Generale.

Moreover, lower consumer price inflation was another factor for deceleration of growth of nominal retail sales. For industrial production, the month-on-month rate is likely to hold up as several high frequency data, such as cement production and power generation, imply stable growth.