Latest Chinese Data Cast Doubt Over the Strength of the Economic Recovery
China Post-Pandemic Recovery
The Chinese economy suffered in 2022 due to the stringent Covid-19 containment measures, which constrained factory output, trade activity and consumer spending. Authorities however, abandoned the strict zero-Covid policies late-last year and the positive impact on the economy has been evident.
The world's second largest economy grew by a historically low 3% in 2022, but the government expects a faster rate of around 5% this year [1]. The International Monetary Fund (IMF) projects growth of 5.2%, easily outpacing the global rate (+2.8%) and other major economies such the US (+1.4%) [2]. In the first quarter of 2023, Chinese GDP expanded by a strong 4.5% y/y and the quickest pace in a year.
The central bank (PBOC) meanwhile, has been trying to support economic activity and in March it lowered the Reserve Requirement Ratio (RRR) by 25 basis points, allowing financial institutions to hold in reserves a smaller amount of their deposits. It did so in order to "effectively upgrade and appropriately expand the economic output" and keep banking liquidity "adequate at a reasonable level". [3]
Overall Industrial Production has been strengthening over the past few months and grew by 5.6% y/y in April according to today's release, from 3.6% previously. Despite this acceleration, the figure was far lower than the 10.9% expected by markets.
Factory activity expanded in January for the first time in four months, with an official (NBS) Manufacturing PMI of 50.2. Despite the strong start to the year, the manufacturing sector lost steam in recent months and the latest data showed a contraction in April (49.2), with the 50 mark separating expansion from contraction.
The latest inflation figures released last week pointed weak consumer demand, since CPI of just 0.1% y/y in last month, marking the smallest increase in more than two years. Retail Sales jumped 18.4% y/y as today data showed, to the highest level since March 2021, but it was not as strong as markets wanted.
The Chinese economy is on clear path to recovery and is generally projected to expand at a faster pace compared to the previous year. Recent incoming data however have been a bit mixed, with some pointing to a strong rebound, while others casting doubt over the recovery process. Today's figures for Industrial Production and Retail Sales were solid, but not a good as markets wanted, keeping fears of a sluggish rebound alive, following the latest discouraging inflation and manufacturing PMI prints.
Nikos Tzabouras
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
References
| Retrieved 16 May 2023 https://english.www.gov.cn/statecouncil/ministries/202303/06/content_WS64059c2fc6d0a757729e7cb8.html | |
| Retrieved 16 May 2023 https://www.imf.org/en/Publications/WEO/Issues/2023/04/11/world-economic-outlook-april-2023 | |
| Retrieved 16 May 2023 http://www.pbc.gov.cn/en/3688110/3688172/4756445/4821979/index.html |
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