Sell-Side Views Post China April Activity Data

Both Nomura and Goldman Sachs weigh in on yesterday's weaker than expected activity data prints. Both banks see risks of further policy support in light of the uneven recovery.

• Nomura: "China’s post-Covid recovery has been rapidly losing steam. Following the scrapping of the zero-Covid policy on 7 December 2022 and as herd immunity was quickly reached in January 2023, China’s economy staged a decent rebound, led by the release of pent-up demand for in-person services and, to some extent, demand for new homes. However, April’s activity data, which were well below consensus forecasts, show that the recovery has stalled, due partly to Beijing’s inability to boost confidence amid worsening geopolitical tensions.
  As disappointment kicks in, we see a rising risk of downward spiral, resulting in weaker activity data, rising unemployment, persistent disinflation, falling market interest rates and a weaker currency. Year-over-year growth in Q2 may still look elevated, thanks to a low base, but sequential growth could experience a material decline. As the economy moves out of its post-Covid sweet spot, Beijing may have to introduce a new round of supportive measures in H2, including cutting benchmark lending rates to bolster growth."
• Goldman's: "Weaker-than-expected April activity data, together with our high-frequency trackers, suggested sequential growth momentum weakened meaningfully vs. Q1, with continued divergence between manufacturing and services sectors. Industrial production growth rose in April from March in year-on-year terms, but the (negative) month-on-month change was the weakest since February 2020 (according to NBS estimates). Retail sales and the Services Industry Output Index both rose significantly in year-on-year terms in April from March, led mainly by the continued improvement in Covid-sensitive services consumption and due entirely to a weaker comparison base (given escalated Covid lockdowns last year). By contrast, year-on-year fixed asset investment growth decelerated in April from March even given the base effects, with broad-based sequential deceleration but mainly led by slower infrastructure investment. Property-related activity growth remained subdued in April despite favorable base effects and continued housing easing, although higher new home completions appear as a silver lining. Nationwide unemployment rates edged down seasonally in April from March, but the youth unemployment rate rose further and reached a record high of over 20%. We believe China's consumption-led post-reopening recovery is still largely on track, but some persistent weaknesses in the economy (e.g., the property sector, youth employment and consumer confidence) may require more targeted policy support to counteract."