China growth slowdown deepens as trade war risk intensifies again

HONG KONG - A batch of May economic indicators announced today, together with previously released trade and credit data, suggest that the risk of growth deceleration looms large as the US-China trade dispute remains unsettled.

BBVA says it anticipates more monetary and fiscal easing measures to be deployed by China over in the balance of 2019 in a bid to sustain growth momentum and offset intensifying headwinds from deteriorating trade tensions.

"In our base scenario, there is still a two-thirds possibility that China and the US could reach a deal to end the confrontations," BBVA says.

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

"May economic indicators suggest that the growth slowdown is broad-based: industrial production decelerated from 5.4% y/y of April to 5% y/y; fixed asset investment also decreased to 5.6% ytd y/y from 6.1% ytd y/y in April, indicating that investor sentiment is still weak.

"The only silver lining is retail sales which improved to 8.6% y/y from 7.2%. May credit data is broadly stable with the previous month readings.

"M2 growth maintains at 8.5% y/y as of the previous month. Both total social financing and new yuan loans marginally increased from the last month readings.

"Altogether, our BBVA MICA model yields a GDP prediction based on monthly data at 6.3% for Q2 2019, in line with the growth slowdown." www/.bbvaresearch.com