China: Growth eased in Q2 – NAB

China’s economic growth eased a little in the second quarter of 2018, down to 6.7% yoy (from 6.8% across the past three quarters), notes the research team at NAB.

Key Quotes

“There remains some significant uncertainty around this outlook – particularly in terms of the deleveraging program and China’s fiscal and monetary policy response to US trade measures (which could yet expand to cover a larger share of China’s exports).”

“We expect a slowing growth trend to continue across the remainder of 2018, however the strength of growth recorded in the first half means that we are revising our forecast for 2018 higher – to 6.6% (from 6.5% previously).”

“Growth in industrial production slowed in June – with output increasing by 6.0% yoy – considerably weaker than market expectations and below the trend rate of 6.3% recorded since the start of 2015.”

“China’s fixed asset investment was a little stronger in June – following a sharp slowdown in May – but remained comparatively weak. An uptick in nominal investment was accompanied by an increase in investment good prices. As a result, the upturn in real investment growth was modest – to 1.7% yoy (from 0.5% in May).”

“China’s trade surplus widened in June – increasing to US$41.6 billion – compared with US$24.9 billion in May. This was the largest surplus since December 2017.”

“Real retail sales were marginally stronger in June – increasing by 7.1% yoy, compared with 6.9% in May (which was the weakest growth rate since mid 2003). That said, real sales have trended lower since March 2017 which is at odds with the strengthening in consumer confidence since this time.”

“China’s new credit issuance remains comparatively weak – reflecting the efforts to deleverage corporates and rein in the shadow banking sector. In the first half of 2018, new credit totalled RMB 9.1 trillion – a decrease of 18% yoy – with the vast majority coming from traditional bank loans.”

“There appears to be an easing trend in monetary policy at present, with the 7 day Shanghai Interbank Offered Rate (Shibor) at its lowest levels since early April 2017.”