Morgan Stanley: 6 Signs That Chinese Growth Could Be Stabilizing

China gymnast

Photo: Adam Pretty/Getty Images

April was the cruelest month for China, with weak industrial production, trade, retail sales, and FAI data. The soft numbers brought back chatter about a Chinese hard landing.But looking forward, Morgan Stanley analyst Helen Qiao and her team preview May data and expect signs of stabilisation.

Here are the six indicators you need to watch for.

Foreign trade, especially imports are expected to pick up in May

Exports are expected to grow 5 per cent YoY and imports are expected to grow 4 per cent, while the trade balance is expected to decline to $15.1 billion in May.

China's export growth is being dragged down by weak demand from Europe, though U.S. demand is expected to be stable. And with approved construction projects China will import more raw materials and other investment related goods.

'On the external front, we expect both export and import growth to keep single-digit growth in May, without meaningful improvement to reflect the slackening global demand and lower commodity import prices.'

Source: Morgan Stanley

Loans are expected to exceed 700 billion renminbi

New credit is expected to be higher in May than it was in April, but money supply M2 growth is expected to decline modestly because of potential forex outflows.

Loans should exceed 700 billion renminbi, and Morgan Stanley analysts Helen Qiao and her team expect it to be at 750 billion renminbi, up from 628 billion in April. The central bank's recent RRR cut should loosen up lending.

Source: Morgan Stanley

Industrial production is expected to gather steam

Industrial production is likely to increase 10 per cent YoY in May, up from 9.3 per cent the previous month. Industrial production still looks to be soft though because of slowing demand and the current destocking process.

Source: Morgan Stanley

Inflation is expected to ease giving the central bank room for more easing.

CPI is expected to ease to 3.2 per cent YoY in May and PPI is expected to decline 1 per cent YoY.

CPI is expected to ease on account of weakening food prices and PPI is expected to soften because of the drop in global commodity prices and softer aggregate demand. 'Disinflation' will provide scope for policy easing.

Source: Morgan Stanley

Retail sales should pick up even faster

Since inflation is expected to ease, retail sales are expected to accelerate even faster. Retail sales are projected to increase 14.3 per cent YoY and 19.9 per cent on a mum seasonally adjusted annual rate basis.

Source: Morgan Stanley

Fixed Asset Investment will hold steady

Fixed asset investment is essentially expected to stay flat in May at 20.1 per cent year-to-date, from 20.2 per cent in April.

While the National Development and Reform Commission has picked up the pace of investment approvals a rebound in investment is not expected as early as May. There needs to be signs of strong credit growth before investment can rise meaningfully.

Source: Morgan Stanley

Now take a look at what's going wrong with another Asian giant...

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