China: Slower IP growth belies improving demand – Standard Chartered

Analysts at Standard Chartered suggest that today’s Chinese economic releases point to green shoots in its economy as despite industrial production (IP) growth slowing to 5.3% y/y in January-February (against consensus of 5.6% and 5.7% in Q4-2018), they believe demand – the driver and leading indicator of economic cycles – has improved.

Key Quotes

“Measured in real terms, retail sales growth picked up to 7.1% y/y in the first two months of 2019 from 6% in Q4, while fixed asset investment (FAI) growth edged up to 5.2% from 4.8%. In other words, seasonality and destocking, rather than a continued domestic-demand slowdown were the underlying reasons for slower IP growth at the beginning of 2019.”

“We maintain our GDP growth forecast of 6.4% for 2019, above market consensus of 6.2%.”

“We expect the People’s Bank of China (PBoC) to cut the RRR by 100bps and the medium-term lending facility rate (MLF) rate by 20bps in Q2-2019 (see China – MLF rate cut more likely than benchmark cut, 15 February 2019).”