China: Recovery is expected to gather traction in Q3 – UOB

Economist at UOB Group Ho Woei Chen, CFA, assessed the latest set of data releases in the Chinese economy and the prospects for the third quarter.

Key Quotes

“Industrial production growth accelerated to 5.6% y/y in August… , the fifth straight month of gains… With the sustained gains, industrial production has finally turned the corner with +0.4% y/y year-to-date increase compared to -0.4% in the previous month.”

“Retail sales also came in above expectation at +0.5% y/y…, its first positive growth since the start of the year… Overall, the rebound in August has narrowed the year-to-date decline in retail sales to -8.6% y/y from -9.9% y/y in the preceding month. In contrast, the e-commerce sales rose 9.5% y/y year-to-date.”

“The urban surveyed jobless rate edged lower to 5.6%... The stronger than expected rebound in economic activities is likely to bring the unemployment rate lower to around 5.4% by end-2020, just a touch higher than 5.2% at the end of 2019. Despite this, lower income would still be a significant headwind to further demand recovery.”

“The economic data in August, including the stronger-than-expected trade and credit growth, all point towards an acceleration in 3Q GDP growth… We now see some upside risk to our GDP forecast for China which is at 4.9% y/y in 3Q and 5.7% y/y in 4Q (2Q: 3.2% y/y) for full-year 1.8% growth.”