China leading indicators – Summer rebound – but still slowdown ahead

Allan von Mehren Danske Bank A/S

Summary: July PMI and commodities point to rebound

The latest round of PMI data for July as well as rising commodity prices point to a mid - year rebound in Chinese activity.
This is a bit at odds with most of the leading indicators we follow. We believe that this will prove to be a mini cycle within the bigger cycle of a moderate slowdown as financial tightening should slow growth eventually. However, the data does point to reduced downside risks.
The strength in Chinese activity is due partly to still strong exports , but construction and housing have also remained robust despite tightening measures. A lift to infrastructure projects ahead of the 19th National Congress of the Communist Party this autumn may also be behind the rebound .
Most leading indicators point to a moderation of activity . Credit growth has declined significantly and output indicators such as electricity generation and steel output are also weaker . Exports to China from commodity exporters such as Chile and Australia are also weaker .

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Author

Allan von Mehren

Danske Bank A/S

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