In view of analysts at Standard Chartered, China’s economy continues to face headwinds despite June real activity surprising to the upside.
Key Quotes
“Industrial production (IP) growth accelerated to 6.3% y/y from 5.0% in May, but the forward-looking PMI new orders index stayed below 50. Retail sales rebounded sharply due largely to the introduction of a new emission standard, which led car dealers to sell old models at deep discounts. Net exports contributed 1.3ppt to H1-2019 growth of 6.3% y/y; however, we do not expect a high export contribution in H2 given softer global demand and higher US tariffs effective from June.”
“We expect lower CPI inflation and a re-emergence of PPI deflation in Q3.”
“Downside growth and inflation risks are creating conditions conducive to a rate cut by the People’s Bank of China (PBoC), in our view. The US Fed’s widely expected rate cut later this month may embolden the PBoC by alleviating pressure on the Chinese yuan (CNY).”
“We expect the central bank to cut the medium-term lending facility (MLF) rate instead of the benchmark lending rate, in line with its reform initiative to transmit the market-based policy rate to the real economy. Full implementation of the fiscal stimulus and easing monetary policy could support a tepid recovery in H2.”
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