China: Growth underwhelms expectations on seasonal effects – Standard Chartered

Analysts at Standard Chartered points out that China’s October growth data underwhelmed market expectations with industrial production (IP) growth slowing to 4.7% y/y from 5.8% in September on seasonal effects.

Key Quotes

“Services-sector growth held up better at 6.6% y/y, similar to previous months. Retail sales growth dropped to 4.9% y/y in October in real terms from 5.7% y/y in Q3-2019, perhaps partly due to the scheduled annual sales promotion on 11 November. Fixed asset investment (FAI) growth remained weak, with the slowdown in real estate and infrastructure investment more than offsetting the tepid recovery in manufacturing investment.”

“Overall, China’s economy maintained a slower cruising speed. The ongoing economic downturn has been more broad-based than previous ones, but less intense in terms of the impact on the labour market.”

“We expect housing construction and net exports to become headwinds in 2020, and as such, see China’s government sticking with a pro-growth policy stance for the foreseeable future. We expect the overall budget deficit (both general and funds accounts) to be maintained at 6.5% of GDP in 2020. This implies that in order to offset the fading effect of tax cuts in 2019, monetary policy may have to shoulder greater responsibility for stabilising growth.”

“We expect the People’s Bank of China (PBoC) to cut the reserve requirement ratio (RRR) by another 50bps before year-end (or inject an equivalent amount of liquidity via targeted measures). The PBoC lowered the medium-term lending facility (MLF) rate by 5bps to 3.25% on 5 November, less aggressive than our forecast of 10bps cut. We expect the PBoC to cut the MLF rate by another 10bps in Q1-2020.”