Thought August 14, 2019 / 02:35 am UTC

China: Muted July Activity Points Toward Q3 Slowdown

By Jeff Ng

China’s economy slowed further in July compared to April to June. This poses downside risks to our 6.2% y/y GDP forecast in Q3, after the economy grew 6.2% in Q2. We see potential fiscal support should growth deteriorates further from current rates.

Key indicators’ performances fell significantly below market expectations, though it was closer to our expectations. This is in line with our China tracker which saw a broadened slowdown in July

This is a signal that growth numbers were officially supported in June and we continue to see headwinds for the economy ahead.

Industrial production grew at 4.8% y/y in July, from 6.3% prior, and was the weakest since 1990 (if we discount Lunar New Year distortions). Industrial production was weighed down by manufacturing (4.5% y/y), even as mining (6.6%) and electricity (6.9%) were more resilient. We observed heavy drags from autos, textiles, raw chemical materials and general equipment.

Meanwhile, retail sales growth (7.6% y/y) was dragged by weak demand for consumer goods (7.4% y/y from 9.9% prior). Demand for jewellery (-1.6% y/y), household electronics (3%), petroleum (-1.1%) and automobiles (-2.6%) were also poor. We are seeing some household austerity as the economic slowdown persists.

Fixed asset investment growth (5.7% y/y YTD) also slowed in July compared to June.

A minor concern is the rebound in the surveyed unemployment rate to 5.3% in July from 5.1% in June. This may have been inflated by seasonal factors.

Given the sluggish momentum, we expect the economy to continue performing poorly in August. Authorities remain comfortable with current trends but will likely intervene if growth weakens further. To us, it means industrial production with <4% y/y growth and/or retail sales with <7% expansion.


Figure 1: Growth Slowed Further in July (% y/y)

Source: CEIC, Continuum Economics

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