China’s growth dip comes at an inconvenient time

May 15, 2019

HONG KONG - A batch of April economic indicators  announced by China today, together with previously-released trade and credit data, suggest that the risk of growth deceleration loomed large even before escalation of US-China trade war in early May, according to a research report by the European banking group BBVA.

"We anticipate more monetary and fiscal easing measures to be deployed (by China) in the rest of the year in a bid to sustain growth momentum and offset intensifying headwinds from deteriorating trade relations," the report says.

But BBVA's base scenario is that China and the US will sort out the current quandary "this summer" to avert long-term confrontation.

"We therefore maintain our full-year growth projection at 6% for 2019, in line with the authorities' range target of 6-6.5%.

"April economic indicators suggest that the growth slowdown is broad-based: industrial production decelerated from 8.5% y/y of March to 5.4% y/y; retail sales declined to 7.2% y/y in April from 8.7% y/y previously; fixed asset investment also decreased to 6.1% ytd y/y from 6.3% ytd y/y in March, led by manufacturing investment.

"(However),  April credit data is unsatisfactory as the authorities might adopt a "wait-and-see" method given the better-than-expected Q1 outturns.

"M2 growth slowed down to 8.5% y/y from 8.6% previously.

"Both total social financing and new yuan loans dipped to RMB 1,360 billion and RMB 1,020 billion from RMB 2,859 billion and RMB 1,690 billion respectively.

"Altogether, our model yields a GDP prediction based on monthly data at 6.3% for Q2 2019, in line with the growth slowdown."  www.bbvaresearch.con (ATI).