Commentary Directory
- Q1 GDP Growth Jumps 1.1% on Strong Personal Consumption
- A Strong March Leads to a Surge in Chinese GDP in Q1 2023
- Durable Goods Retail Sales Suffer from High Interest Rates and Wary Consumers
- Choppy GDP Means UK Should Avoid Q1 Recession
- Japanese Consumer Confidence Jumps to Highest Level in Over a Year
- The End of Summer Sees the End of Disinflation in Europe
- Labor Market Indicators are Starting to Unify on Easing in Hiring
- Inflation and Tight Financial Conditions Weigh on the German Consumer
- Euro Area Money Supply Contracts for the First Time Since 2010
- Dismal Economic Data Out of Germany
- Core Durable Goods New Orders See Gentle Uptrend in July
- More UK Data Pointing to Q3 Decline
- Whispers of a UK Contraction in Q3
- Japan's Core Inflation Resumes Uptrend in July
- Early July Economic Data Leads to a Sharp Increase in Q3 Growth Expectations
- UK CPI: Energy Inflation Crashes but Services Inflation is Still Sticky
- China's Weak Start to Q3 Means More PBoC Easing
- A Breather for the Eurozone as Inflation Hits Two-Year Low
- Germany's September CPI Report: A Clearer Picture of Inflation Trends
- US Manufacturing Demonstrates Resilience Amidst Volatility in August
- The ECB Prepares to Address Excess Liquidity Through the MRR
- Bank of Japan is Too Optimistic on Inflation
- The Bank of England Pauses in a Near Split Decision
- UK Inflation August Update: A Precursor to the Bank of England's Announcement
- Housing Starts Tumble in August Amid Rising Mortgage Rates
- US Retail Sales Grow at Fastest Monthly Rate Since the Start of the Year
- US Consumer Prices Surge in August Driven by Energy Costs
- August NFIB Survey Showed a Tough Environment for Small Businesses
- All Signs Point to a Weaker Labor Market in August
- Chinese CPI Trying to Buck the Deflation Trend
- Energy Prices Rise but the Core Disinflationary Trend is Maintained in September
- PPI's Quiet Rise and the Energy Elephant in the Room
- Small Businesses Grapple with Inflation and Financial Strain in September
- A Wacky September Jobs Report Shows Strong Labor Market
- A Look at the Fragile US Labor Market Ahead of the Nonfarm Payrolls Report
- Thoughts on GME and This Week in the Stock Market
- Record Home Price Levels Point to Strength in Post-Pandemic Economy
- The Stock Market Looks Overvalued, but It's Probably Not
- China GDP Growth Surpasses Expectations
- President-elect Joe Biden Introduces His "American Rescue Plan"
- Political Polarization Intensifies with Another Impeachment Along Party Lines
- Metal Demand Has a Bright Future in 2021 and Beyond
- What Happened to That US-China Trade Dispute?
- Civil Unrest, A Rising Threat to the 2021 Economy
- What's in the $900 Billion Relief Plan?
Chinese Economic Data Faltered in July
Jacob Hess
August 15, 2022
- China
- Economy
China was weak in July after a strong June. The PBoC confirmed this when it chose to cut some of its rates further in the same day as the release of the economic data (the first cut since January). Weakness that was initiated by the COVID outbreak and restrictions that followed seems to be hard to shake off with credit flowing less freely (fixed asset investment) and consumer activity (retail sales) struggling to continue the rebound.
The real estate sector has been a huge source of the uncertainty in the economy ever since the Evergrande situation. The crackdown on overleveraged firms has created tighter financial conditions in the real estate development business as well as more prudent borrowers. The trend in home prices speaks for itself. Just about every developed nation is seeing double-digit annual growth in housing prices while new home prices were up just 3.1% YoY in July.
As mentioned before, weakness was broad based in July. Retail sales are still struggling despite consumer activity perking up following its decimation in Q1. Sales grew just 0.3% MoM and were up just 2.7% YoY which is a lower annual growth rate than June at 3.1% YoY.
Industrial production suffered as a result of the disruption in the real estate sector. Firms in the building materials and furniture industries have limited production in the last year. Headline industrial production slowed to 3.8% YoY annual growth vs 3.9% YoY annual growth in June. ING points out that semiconductor production is down as well, likely a result of chipmakers expecting demand to slow in the near future.
Chinese Growth Will Be Missed
The data is clear. Chinese growth will be a sore spot in 2022 unless a dramatic turn around occurs in the next 5 months. Downgrades of 2022 GDP growth are cropping up across many financial institutions that have digested new Chinese economic data.
Recently, ING and ABN AMRO have lowered growth forecasts. The Dutch bank revised its forecast for China’s 2022 GDP growth to 4.0% from 4.4% as a direct result of the data and the rate cuts on August 15th. It also suggests that further downgrades could be on deck if trade data is sour. ABN AMRO confirmed the downward revision it made last month as a result of the array of releases. It now sees growth of just 3.7% in 2022, down from 4.2% previously.
Both adjustments follow the pessimistic view on China posited by the IMF in its World Economic Outlook update in July. The report said, “in China, further lockdowns and the deepening real estate crisis have led growth to be revised down by -1.1 ppts, with major global spillovers.” The IMF now forecasts an even lower 3.3% GDP growth rate in 2022, lower than the 4.6% estimated for the Emerging and Developing Asia region.
China is an integral part of global supply chains and a key piece of the global GDP picture. Weakness in its economy will not only affect its region but every continent. Investors should keep a close eye on how the recovery develops in the latter half of 2022 as Beijing grapples with the lingering effects of the pandemic. In the end most will agree, Chinese growth will be missed.
© MTS Insights 2023