China: August macro data disappoint

China Macro: Monthly activity data for August even weaker than expected

August data published last Saturday showed an anticipated further slowdown in annual growth, but the figures came in even weaker than expected. After a pick-up to 2.7% yoy in July, retail sales growth dropped back to 2.1% (consensus: 2.5%). On a monthly basis, retail sales were flat (July: 0.3% mom s.a.). Industrial production slowed for the fourth month in a row, to 4.5% yoy (July: 5.1%, consensus: 4.7%), with growth on a monthly basis staying around 0.4% mom. Fixed investment slowed to a eight-month low of 3.4% yoy ytd (Jan-July: 3.6%, consensus: 3.5%). There is still a clear discrepancy between weak private investment, which slid back into contraction territory, and stronger state-led investment, although SOE investment also slowed to 6.0% yoy ytd - the weakest pace since December 2021. The surveyed jobless rate edged up further a bit, to equal a 7-month high of 5.3% (July: 5.2%). Meanwhile, property investment and residential property sales remained deeply in contraction territory and the drop in house prices accelerated, showing that the real estate downturn remains the key headwind for the Chinese economy.

More support expected

The latest data confirm that the Chinese economy remains stuck in low gear, with the demand side still impacted by the ongoing property sector downturn. So far, piecemeal monetary easing and targeted support for the property sector have failed to bring an improvement in growth momentum. Meanwhile, while exports remain a key growth pillar so far, risks on the external front are building, as Chinese oversupply is adding to a broadening of trade spats while the US economy is slowing. All in all, risks to the government’s 5% growth target for 2024, and our growth forecast of 4.9%, are rising further. Against that background, we still expect more support measures to safeguard growth in 2024 (and beyond). On the monetary policy front, we foresee further mini policy rate cuts and RRR cuts going forward. Given the latest data - and with the Fed rate cut cycle expected to start coming Wednesday - there is a rising possibility of further cuts, perhaps already this month.