MNI: China’s August Data To Show Fragile Recovery - Analysts

Industrial production, fixed asset investment and retail sales data are expected to show China’s growth stabilised in August despite renewed Covid-19 outbreaks and power rationing triggered by the worst heatwave in decades, analysts said.

Friday’s trio of data releases will provide a fuller picture of an economy that endured a sharp slowdown in export growth in August, while weaker-than-expected credit growth signalled sluggish demand in the real economy.

INDUSTRY STIRS

The median forecast calls for 3.8% y/y growth in August industrial production, steady with the pace recorded in July.

The forward-looking official manufacturing PMI contracted for a second month in August, with the production sub-index remaining steady with July’s print of 49.8, below the 50-point mark that separates contraction from expansion.

But signs of increased activity in high frequency data, ranging from blast furnace utilization at 247 steel mills to the operating rate of major rebar mills, suggests limited impact from drought-induced power rationing in southwest China and some provinces along the Yangtze River, said Minsheng Bank chief economist Wen Bin. Wen forecasts industrial production to tick slightly higher to a 3.9% y/y pace.

Analysts from China International Capital Corporation also forecast 3.9% y/y growth, adding that power outages at the same time last year offered a low comparison base.

PROPERTY BLUES

Though hot weather may have affected outdoor construction, infrastructure investment is still expected to have grown rapidly due to government spending and a lower comparison base last August.

The CNY300 billion in policy bank-backed infrastructure funds approved in June had all been allocated to projects by the end of August, which could help drive infrastructure investment growth to over 12% y/y in August, said CITIC Securities chief macroeconomic analyst Cheng Qiang.

But this may not be enough to plug the gap caused by weakness in the embattled property sector.

Property sentiment slightly rebounded as the government pushed to ensure the delivery of unfinished housing projects. Additionally, the average mortgage interest rate has dropped by 101 bps since the start of the year following a 15 bp cut in the benchmark 5-year Loan Prime Rate in August, said CICC analysts. They expect the year-on-year decline in property investment may narrow to 5% in August compared with July’s 12% fall. The decline in home sales is expected to narrow to -25% from the previous print of -29%.

The median forecast is for fixed-asset investment to have grown 5.6% y/y in the first eight months, decelerating from 5.7% in the Jan-July period.

RETAIL REVIVAL

Retail sales likely rebounded to around 4% y/y from July’s 2.7% gain, both Wen and Cheng predict, while the median forecast is looking for a 3.1% rise.

Passenger car sales reached 1.87 million in August, rising 28.9% y/y, the quickest pace over the past ten years, according to data from China Passenger Car Association. While car sales are benefiting from strong promotions and preferential policies including tax cuts and purchase subsidies, catering revenue has been hit by increased Covid restrictions as cases rises across the country, analysts pointed out.

The rebound in the headline figure could be helped by a lower base in the same period last year when widespread Covid-19 cases dragged retail sales to its lowest level in 2021, Cheng added.