A batch of July economic indicators are announced today, together with the previously released trade and credit data, suggesting that the growth further decelerated amid the escalation of US-China trade war and the domestic structural obstacles such as debt overhang and financial risks. Although the US president Trump postponed the tariff hike of some Chinese exports to December, which we believe accounts for around 60% of the remaining USD 300 billion shipment from China, trade war uncertainties are likely to persist for a long period of time. Looking ahead, the growth outlook in 2H 2019 depends on the authorities' policy stance. We anticipate more monetary and fiscal easing measures to be deployed to sustain growth momentum and offset intensifying headwinds from unsettled trade tensions. Altogether, we maintain our 2019 GDP forecasting at 6% (the authorities' target: 6-6.5%). The risk of growth deceleration in 2H 2019 remains high.

The growth slowdown in July is broad-based as all indicators are below the previous readings and the market consensus: industrial production decelerated from 6.3% y/y of June to 4.8% y/y; fixed asset investment also decreased to 5.7% ytd y/y from 5.8% ytd y/y in July; retail sales also dipped significantly to 7.6% y/y from 9.8% y/y in June. (Table 1; Figure 3-8).

fxsoriginal

 

PMI

 

RetailSales

 

July credit data decelerated from the previous month readings. Both total social financing and the new yuan loans decreased significantly from those of the last month. M2 growth declined to 8.1% y/y from the previous reading at 8.5%. Altogether, our BBVA MICA model yields a GDP prediction based on monthly data at 6.2% y/y for Q3 (Q2 prediction: 6.3% y/y), in line with the growth slowdown. (Figure 2)

fxsoriginal

 

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