China: Slower growth in Q2? – Standard Chartered

Standard Chartered analysts point out that their China’s nowcasting model points to GDP growth of 6.2% y/y in the first two months of Q2-2019, decelerating from 6.4% y/y in Q1.

Key Quotes

“Our monthly growth tracker confirms that momentum weakened in April-May. Industrial production slowed significantly from growth of 6.5% y/y in Q1 to an average of 5.2% for April-May, partly due to the distortion from the value-added tax cut and holiday.”

“Retail sales and fixed asset investment growth weakened following a recovery in Q1 in real terms, indicating softer domestic demand. The external sector remained on a moderating trend, with exports and imports registering bigger y/y declines in the first two months of Q2.”

“The new orders and new business sub-indices of official PMIs trended down for two months since March, suggesting growth momentum is likely to remain soft in the near term. Money and credit growth eased in April-May, but the performance of stock markets improved.”

“Softer growth in April-May poses downside risks to our Q2 GDP growth forecast of 6.4% y/y. However, we expect growth to recover in June as China tends to post slow growth at the beginning of a quarter and stronger growth in its final month.”

“The market’s focus is on the bilateral meeting between President Xi and Trump at the G20 summit on 28-29 June in Osaka. We expect the US and China to resume trade talks after the summit. We also maintain our view that China can achieve its GDP growth target of 6-6.5% for 2019 on the back of proactive fiscal policy.”