China - October data suggest demand side is improving

China Macro: Retail sales picked up further in October

Following the September macro data and the October PMIs (see our comment here), the ‘hard’ activity data for October published this morning bring further signs that China’s growth momentum is picking up in the final quarter of this year. Particularly retail sales came in stronger than expected, with annual growth rising to a ten-month high of 4.8% yoy (September: 3.2%, consensus: 3.8%). On a monthly basis, retail sales grew by 0.4% mom s.a. (September: 0.6%). Industrial production growth was stable at 5.3% yoy (September: 5.4%, consensus: 5.6%), with growth over the month also dropping back a bit to 0.4% mom s.a. from 0.6% the previous month. Fixed investment also stabilised at 3.4% yoy ytd (consensus: 3.5%). Property sector data remained deeply in contraction mode, although residential property sales showed signs of a bottoming out. In October, for the first time since May 2023, residential home sales were higher than the same month one year earlier. Meanwhile, the surveyed jobless rate in urban areas came down further, dropping back to a four-month low of 5.0%. Recent monthly data are in line with our forecast that quarterly growth will pick up materially in Q4-2024, partly reflecting payback from weakness in the previous two quarters.

A challenging year ahead

The October data seem to suggest that the demand side shows some signs of improvement, after Beijing finally shifted focus to short-term demand management (rather than prioritizing mainly the supply side and industrial policy) over the summer. Fiscal support is being stepped up: the announcement of a CNY 10 trn package to repair local government finances on 8 November was followed by a housing tax cut this week, as a signal that more fiscal support for the property sector and the wider economy is underway. Given the expected additional drags from the stepping up of US import tariffs under the 2nd Trump administration, we still expect Beijing to keep part of its powder dry to be able to act when more is known about Trump’s exact tariff plans (see our report China - Trump 2.0 versus more fiscal support).

Although the economy seems to be on a bit more stable footing, we recently cut our growth forecast for 2025 to 4.3% (from 4.5%) following the outcome of the US elections, see our global update, New forecasts following US election. You will find more background on our outlook for the global including the Chinese economy in 2025 (and 2026) in our Global Annual Outlook that we will publish at the end of next week.