China: Weakness in industrial sector and trade points to easing growth – NAB

Gerard Burg, senior economist at NAB, suggests that they are expecting Chinese economic growth to continue to ease this year as manufacturing conditions remain weak, on both domestic and export demand.

Key Quotes

“China’s annual growth target (along with other economic targets) was announced at the National People’s Congress in March. As expected, the target is a range from 6% to 6.5%. Our outlook for China remains unchanged – we see growth at 6.25% in 2019 before slowing to 6.0% in 2020. Although trade tensions with the United States may soon be resolved, the global trade environment has continued to weaken, which could present some downside risk to this forecast.”

“China’s industrial output grew a little more modestly in the first two months of 2019 – increasing by 5.3% yoy (compared with 5.7% in December 2018). It is worth noting that this was the slowest rate of increase since the January-February period in 2009, the bottom of the global financial crisis for China. Real fixed asset investment has strengthened – up to 6.3% yoy in the first two months (compared with 5.3% in December 2018), the strongest increase since October 2016 – albeit well below the trend from 2009 to 2015.”

“The trade environment was weak in early 2019, with a notable downturn in both exports and imports compared with late 2018. With a larger slowing in exports, China’s trade surplus narrowed significantly – to an average of US$21.9 billion across January and February.”

“Real retail sales growth accelerated slightly in January-February – to 7.1% yoy – from 6.7% yoy in December and the recent low of 5.6% yoy in October.”