China growth moderates amid trade risk and domestic deleveraging

June 14, 2018

HONG KONG - May economic indicators announced in China today, together with previously-released credit data, point to an expected moderation in growth, BBVA says in a research note. In particular, fixed asset investment, industrial production and retail sales all dropped from previous readings and were below market expectations.

“This suggests that headwinds are weighing on growth, mainly from domestic tightening policy and the unsettled trade skirmishes with the US, although the latter, in our baseline scenario, is unlikely to evolve into a full-blown trade war between the largest country economies,” the BBVA report says.

 

“That being said, growth is most likely to moderate through the rest of the year.

 

“Thus, we maintain our 2018 growth projection at 6.3% y/y, compared with the official target rate at 6.5% and the Bloomberg consensus at 6.5%.”

 

BBVA says  May economic indicators are lacklustre: Fixed asset investment decreased to 6.1% ytd y/y from 7% ytd y/y previously (consensus: 7% ytd y/y), indicating investment slowed down due to financial tightening and deleveraging; retail sales decelerated to 8.5% y/y from 9.4% y/y in the previous month (consensus: 9.6% y/y); industrial production also declined to 6.8% y/y from 7% y/y previously (consensus: 7% y/y).

 

May credit data slowed as well: Although M2 growth was maintained at 8.3% y/y, total social financing and new yuan loans both decreased to RMB760.8 billion and RMB1150 billion, respectively.  www.bbva.cm (ATI).