China: Weak October data – NAB

Gerard Burg, senior economist at National Australia Bank (NAB) points out that most of China’s indicators were relatively weak in October as in addition to the impact of the US-China trade war, they may also reflect disruptions caused by the celebrations for the 70th anniversary of the founding of the People’s Republic of China at the start of the month.

Key Quotes

“We argue that the weakness this month should not be over emphasised. Our forecasts for China’s economic growth are unchanged – at 6.1% for 2019, 5.9% for 2020 and 5.8% for 2021.”

“Growth in China’s industrial production slowed again in October – increasing by 4.7% yoy (down from 5.8% previously). This was the second weakest rate of growth in ten years (compared with the 4.4% increase in August.”

“Growth in China’s fixed asset investment slowed in October – down to 3.7% yoy (from 4.8% previously).”

“China’s trade surplus edged slightly wider for the second straight month in October – to US$42.8 billion (from US$39.2 billion previously).”

“Producer price deflation has continued to accelerate – suggesting that one impact of the US-China trade war has been for Chinese manufacturers to cut factory gate prices to support sales volumes. Producer prices fell by 1.6% yoy in October (compared with a 1.2% fall previously).”

“The People’s Bank of China (PBoC) cut the MLF rate by 5 basis points in early November – to 3.25% - which will likely be reflected in the benchmark Loan Prime Rate when it is announced on 20 November. Compared with policy easing in other countries, this cut was extremely modest, however the PBoC has scope to cut further and faster if required in the future.”