China slowdown calls for more easing measures: BBVA

HONG KONG - September economic indicators for China reported today show Q3 GDP growth slowing to 6.5% y/y from 6.7% y/y in the previous quarter suggesting that the Chinese economy further moderated amid escalation of the trade war with the US and domestic deleveraging.

BBVA Bank says it now expects China's monetary and fiscal policy to become more pro-growth in the rest of the year to offset the external shock of the trade war, "although the authorities remain vigilant on financial vulnerabilities, including indebtedness in the corporate and shadow banking activities".

"(But) we maintain our 2018 growth projection at 6.5% y/y, compared with the official target rate of 6.5% and the Bloomberg consensus at 6.6%," BBVA says.

"September economic indicators are mixed: Fixed asset investment marginally increased to 5.4% ytd y/y from 5.3% ytd y/y previously (consensus: 5.3% ytd y/y), indicating that investment was maintained by the recent easing measures;

"Retail sales improved to 9.2% y/y from 9% y/y in the previous month (consensus: 9% y/y); the jobless rate also improved marginally to 4.9% from 5% previously.

"However, industrial production declined from 6.1% y/y to 5.8% y/y (consensus: 6% y/y)."  

BBVA says September credit data significantly improved due to the authorities' recent easing measures: M2 growth increased to 8.3% y/y from 8.2% previously, so did new yuan loans and total social financing.

"Altogether, our MICA model yields a monthly GDP prediction at 6.6%, in line with the growth slowdown," it says.  www.bbva.com (ATI).