Soft growth in external demand will likely be the main drag to overall growth. We are forecasting a 1.9% y/y contraction in exports, albeit better than the 6.6% fall in imports. This will still translate to a USD38.86 billion trade surplus in September. We expect industrial production to rebound to 5% y/y in September from 4.4% a month ago. Retail sales also likely improved ahead of the October “Golden Week.” We forecast 7.7% y/y expansion from 7.5% in the prior month. Meanwhile, fixed-asset investment likely kept stable at a 5.5% y/y YTD expansion.
Some improvement in official and Caixin manufacturing PMIs hint at an improved September, although it remains slight in our view. We expect that factory prices continued to fall, this time by 1.2% y/y. Inflationary concerns are likely to remain, with a forecasted 2.9% y/y print.
If the results come in as we expect, China's growth conditions will have remained resilient overall. Still, as we have been highlighting, the labor market and consumers remain a large concern for the economy. We expect additional monetary easing from the People’s Bank of China in the months ahead, in the form of reserve requirement ratio and loan prime rate cuts.
U.S./China trade issues will likely remain a large swing factor for growth dynamics, given its potential impact on confidence and momentum. If trade talks break down, the U.S. will likely impose more tariffs, with subsequent retaliation from China. This scenario will mean continued CNY weakness. Our central forecast for USDCNY is 7.20 by end-2019 and 7.40 by end-2020.