China’s partial economic indicators broadly stable in May, but weak enough for PBoC forecast cuts

• In June, the People’s Bank of China (PBoC) cut their economic growth forecast for 2015 from 7.1% to 7.0%. For now, our economic forecasts remain unchanged (7.1% in 2015, 6.9% in 2016) but we note the downside risk presented by any major correction in equities markets.

• China recorded another month of weak industrial production in May – with output rising by 6.1% yoy (from 5.9% in April). This level is only marginally stronger than the six year low of 5.6% recorded in March, but was in line with market expectations.

• Fixed asset investment recorded slightly stronger growth in May, at 10.0% yoy (up from 9.4% in April – which was the slowest rate of growth since December 2001). That said, lower costs for key inputs (including steel) have supported stronger levels of real investment.

• China’s trade surplus expanded further in May, rising to US$59.5 billion (from US$34.1 billion in April). This was only marginally below the record level recorded in February 2015 (US$60.6 billion). The increase reflected a more modest decline in exports (-2.5% yoy) than imports (-18%yoy).

• Capital outflows have continued in early 2015 – with the total flow in the March quarter rising to US$159 billion (from US$97 billion in Q4 2014). As we have previously noted, this outflow includes ‘hot money’, reflecting the unwinding of the carry trade – however some is likely to be officially sanctioned outward foreign investment.

For further details, please see the attached document:

•  China Economy at a glance – 12 June 2015 (PDF, 498KB)