China: Growth recovery extended but demand side still lagged – BBVA

On Friday, key economic data was released in China. Economic activity indicators of July including industrial production, fixed asset investment and retail sales all pointed that growth recovery extended in the second half of the year, noted analysts at BBVA. However, they warn the demand side still lagged behind the supply side.

Key Quotes: 

“Economic activity indicators of July maintained recovery momentum, indicating the post-COVID recovery extended in 2H.”

“The unbalanced recovery, that demand side lagged behind the supply side also exists in July, but it improves from the 1H. The better-than-expected recovery makes the PBoC plan to gradually normalize monetary policy in 2H, however, the monetary policy normalization does not necessarily mean the tightening cycle starts.”

“We expect an unbalanced recovery to continue in the following months and the economy still needs time to go back to the prior-COVID level. The sustainable recovery of Chinese economy in 2H depends on to what extend the authorities' monetary and fiscal easing measures could stimulate the domestic demand.”

“We maintain our prediction that the GDP growth rate will steadily climb up to 5% y/y in Q3 and 6% y/y in Q4, concluding 2020 with a full-year growth outturn of 2.2% (higher than the IMF's 1% forecast while generally in line with the market consensus), making China be one the few countries or regions in the world achieving positive growth in 2020.”