China’s growth is slowing and data out over the weekend suggests that the economy has further weakness in the months ahead, according to Westpac’s Singapore-based strategist Jonathan Cavenagh.
Summarising the data points released Saturday, Cavenagh said:
Over the weekend, China released IP, fixed asset investment and retail sales data for August. All prints came in weaker than expected but the very sharp deceleration in year-on-year (yoy) IP growth will draw the most attention. IP rose just 6.9% versus 8.8% expected and a 9.0% print in July. Retail sales rose 11.9% versus 12.1% expected and 12.2% previously, although the month-on-month number improved from July. Fixed asset investment was up 16.5% versus 16.9% expected and 17.0% previously. In addition, the national statistics bureau released other data on Saturday, which showed that house sales dropped close to 11%yoy through January to August, versus a 10.5% drop in the first 7 months of the year. It also came after weaker monetary aggregate figures on Friday.
Our China data pulse fell to 38.9% at the end of last week, which is well down from the +75% level we saw in June but still above the 20% trough we saw in February of this year. Hence we could continue to see softer data momentum for a number of weeks before we reach a point where can say more confidently that a lot of ‘bad news’ is now priced into the short term China outlook.
That’s hardly good news for the iron ore price or for Australia’s economy, but Cavenagh says there could be a “circuit breaker” of fresh policy stimulus from Beijing, adding that “last week, at the World Economic Forum, the Chinese Premier appeared to distance the authorities from any near term actions”.