China - April data disappoint

China Macro: April activity data weaker than expected

Chinese data for March did generally point to improving momentum, but the April data published so far suggest the reopening rebound is fading. Following a decline in PMIs earlier this month (with services PMIs remaining at relatively high levels though), weak lending data and a further drop in already low inflation, the activity data published this morning also came in weaker than expected. Annual growth of industrial production and retail sales increased compared to the pace seen in previous months, but not as much as expected. Reflecting the strong base effect of last year, when China was in a broad lockdown following the spread of Omicron, retail sales accelerated to 18.4% yoy (March: 10.6%, consensus: 21.9%). But in monthly terms, retail sales slowed to 0.5% mom s.a. (March: 0.8%). Industrial production accelerated to 5.6% yoy (March: 3.9%), but also came in weaker than expected (10.9%), with industrial headwinds such as the slowdown in global demand still ongoing. On a monthly basis, industrial production contracted by -0.5% (March: +0.3%). Fixed investment growth disappointed as well, slowing to 4.7% yoy ytd (Jan-March: 5.1%, consensus: 5.7%). Property sector data were not impressive either. The exception to the rule was the surveyed jobless rate, which dropped to 5.2% (March/consensus: 5.3%). However, youth unemployment rose to a record high of 20.4%.

More piecemeal, targeted support likely

All in all, Bloomberg’s monthly GDP estimate rose to a 2-year high of 8.0% yoy in April, flattered by the strong base effect from a year ago. For the same reason, we expect annual growth of real GDP to surge in Q2, but quarterly growth to come down in the course of 2023 (following the ‘reopening bonus’ in Q1-2023, when GDP grew 2.2% qoq). With inflationary pressures being absent and activity numbers disappointing, we expect Beijing to continue adding support. We still think policy makers will refrain from agressive easing, as they want to contain overall leverage and prevent the overheating issues that arose after the rebound from the initial Covid-19 shock in 2020. Going forward, we expect more piecemeal monetary easing in the form of mini cuts of interest rates and a further cut in the reserve requirement ratio for banks, as well as targeted fiscal support.