Talks of a Chinese hard-landing are back after a slew of weak economic data out of China.While we think a hard-landing, defined as four consecutive quarters of growth of five per cent or below, is off the mark, the data does raise concerns of a deeper weakness in the Chinese economy.
First, a quick round-up of all the data:
- Industrial production fell to 9.3 per cent year-over-year (YoY) growth in April, from 11.9 per cent the previous month and missing expectations of 12.2 per cent growth.
- Fixed Assets Investment (FAI) year-to-date grew 20.2 per cent YoY, against expectations of 20.5 per cent growth.
- Retail sales grew 14.1 per cent YoY, down from 15.2 per cent the previous month, and against expectations of a 15.1 per cent rise.
- CPI grew 3.4 per cent YoY, down from 3.6 per cent the previous month and in line with consensus view. Meanwhile, PPI fell 0.7 per cent YoY beating expectations for a 0.5 per cent drop.
- China also released weak April trade data yesterday with imports and exports missing expectations.
Following on the weak April data, Ting Lu, China economist for Bank of America-Merrill Lynch, and his team have revised down their previously upbeat forecasts for Chinese growth:
“We previously forecasted China’s GDP growth could quicken from 8.1% yoy in 1Q to 8.5% in 2Q, and we had maintained our 2012 annual GDP growth forecast at 8.6% since October 2011. With poor readings from April, we decide to change our views and forecasts.
We cut 2Q yoy GDP growth to 7.6% from 8.5% and cut 2012 annual GDP growth to 8.0% from 8.6%. IP growth could rebound in either May or June from the low of 9.3% yoy in April, and GDP growth may rebound in 3Q to 8.0% and 8.2% in 4Q. QoQ growth (seasonally adjusted, not annualized) could slow to 1.6% in 2Q from 1.8% in 1Q, rebound to 2.4% in 3Q, and then soften to 2.2% in 4Q.”
But there is a sliver lining to all this. China’s policy stimulus could be more aggressive than has been previously forecasted. Ting who had previously forecast two 50 basis points RRR cuts before the end of the year, says the probability of rate cuts will increase. Beijing could also further ease credit supply, start more projects and spend more on social welfare. They could also pick up the pace on constructions of social housing and infrastructure all contributing to growth.