Yesterday markets received a swathe of economic data out of China, with most of the numbers coming in ahead of expectations.
This welcome development, a stark change from data released earlier in the year, has seen sentiment towards the outlook for China’s economy improve, albeit from still-low levels.
CBA’s China and Asia economist Wei Li is certainly more optimistic, suggesting the outlook for Chinese economic growth in the second half of the year is “constructive”.
Here’s Li on the data deluge released yesterday.
“Growth data released on Thursday suggests there have been some green shoots of economic recovery. Industrial production (IP) growth continued to edge up in May, to 6.1% yoy from 5.9% in April. This echoes with the official manufacturing PMI data, which has stayed above 50 for three consecutive months. The production sub-index of PMI accelerated to 52.9 in May from 52.6 prior, the highest reading of the past seven months. The slowing trend in industrial production growth evidenced earlier in the year appears to have reversed.
The housing market is breathing its life back. In May, new housing sales, measured in floor space, reached 86.5mn sqms, or a growth of 16.4% yoy, in contrast with an average decline of 12% in Q1. As a result, growth of new housing construction continued to recover, to -12.2% yoy in May, from -16.6% in April. We expect the recovery in the housing market to continue in coming months.
Consumer spending growth picked up too. The real growth rate accelerated to 10.2% yoy from 9.9% prior. Other data, such as passenger car sales and residential electricity consumption growth, suggest the overall momentum in consumer spending remains decent. While the labour market softened over the past six months, there are no wide spreading layoffs in China.
Although not everyone shares Li’s optimism, given the modest improvement in the data seen in May, things are certainly looking less-grim than what was the case only a month earlier.
Adding to that view the Li Keqiang index, an alternative measure of economic activity compared other formal data releases, suggests growth is picking up.
The index, named after the Chinese premier who stated previously that official economic data was unreliable, tracks railway cargo volumes, electricity consumption along with new bank lending – those indicators he watched as Party committee secretary of Liaoning province — to garner a more-accurate picture of economic activity.
With most economic data for May now released, market attention will turn to the flash manufacturing PMI release on June 23, to see whether the positive economic momentum seen in May can continue.
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