China: Cyclical recovery setting in – Standard Chartered

Analysts at Standard Chartered notes that China’s economy expanded 6.0% YoY and 1.5% QoQ (seasonally adjusted) in Q4, ending a downtrend since H2-2018.

Key Quotes

“For the full year, China grew 6.1%, compared with 6.6% in 2018. Monthly data suggests that growth in China continued to recover in December, with industrial production (IP) growth jumping unexpectedly to 6.9% y/y, against market expectations of only 5.9%. Fixed asset investment (FAI) growth also improved to 7.4% y/y in December from 5.2% y/y in November. Annual GDP deflator was 1.6%, reflecting PPI deflation and rising CPI inflation.”

“China is likely to maintain a pro-growth policy stance through H1-2020. But weak spots in the economy remain. The industrial sector, for example, continues to face difficulty from falling factory prices and deteriorating profitability. Manufacturing investment remained sluggish for most of 2019. Real-estate construction investment saw a strong rally in 2019, but the trend is likely to reverse in 2020 on declining land sales since H2-2018. Premier Li has reiterated the importance of China kick-starting the year on a strong note, in order to meet the stated goal of doubling real GDP from 2010-20 by year-end.”

“We maintain our expectation for the People’s Bank of China (PBoC) to lower the medium-term lending facility (MLF) rate by a total 20bps in H1, and cut the reserve requirement ratio (RRR) by another 100bps (or inject an equivalent amount of liquidity through targeted RRR cuts or central bank lending facilities) before end-Q3. The next MLF rate cut (5bps) may come in February. We also maintain our GDP growth forecast for 2020 at 6.1%, above market consensus of 5.9%.”