China: Data confirms Q1 was weak but we see signs that this may be the bottom – Danske Bank

According to Allan von Mehren, Chief Analyst at Danske Bank, data released today confirmed that activity during the first quarter in China was weak but forward looking indicators still support the case for a growth bottom.

Key Quotes:  

“Overnight we received Chinese data for industrial production, retail sales and fixed asset investments. Industrial production fell to 5.3% y/y for January/February from 5.6% y/y in December. This is the lowest level since the financial crisis. However, details in the report showed decent growth in both electricity and cement, which have tended to be better gauges of the Chinese business cycle in recent years.”

“This was a very mixed bag of data, which shows that some sectors are weak while others recovering. We generally do not put too much weight on the overall industrial production data, as the series started to correlate poorly with other business cycle indicators from around 2014.

“Some of our favourite indicators for China are PMI manufacturing, metal price inflation and some of the subcomponents in the industrial production report like electricity and cement, which have a higher correlation with PMI and other business cycle signals. Judging from these, the Chinese economy started 2019 on a very weak note but is showing signs that the worst may soon be behind us.”

“The data confirms that Q1 was weak but we see signs that this may be the bottom. We still look for a moderate recovery from Q2, driven by stimulus measures, a trade deal with the US and an end to reductions in inventories.”