Below trend growth to continue
It has been an eventful month with the annual National People’s Congress (NPC) getting underway early last week, while a number of policies to curb property prices were also announced in the lead up to the gathering – triggering a sharp correction in equity markets.
It has been an eventful month with the annual National People’s Congress (NPC) getting underway early last week, while a number of policies to curb property prices were also announced in the lead up to the gathering – triggering a sharp correction in equity markets. The NPC is an important assembly of the Chinese leadership where the annual budget and economic targets are announced – the GDP growth target for 2013 was kept at 7.5%. Chinese statistical authorities have also recently released some of the major economic data for February. We had been eagerly anticipating the February data for further confirmation that the turnaround in the economy seen late last year continued into 2013. February data is more informative as it tends to be more complete than January, and allows us to (attempt to) look through seasonal distortions from Lunar New Year (although residual seasonality often remains).
Many of the partial indicators – particularly those relating to private domestic demand – came in below expectations this month. Even after taking January and February together (a simple way of adjusting for some of the LNY impacts) the outcomes still cast some doubt on the expectation for a rapid recovery in the economy during the first half of the year. This softness in the partials suggest that the need for policy tightening may arise later than currently forecast (September quarter), despite an acceleration in CPI for February that was largely seasonal. Nevertheless, we maintain our expectation for a modest recovery in the economy this year to around 8¼% (above the government’s 7.5% target), with the majority of the acceleration to occur in H1. However, with a substantial pick-up in private domestic demand remaining elusive, the balance of risks to the outlook has shifted to the downside.
A sharp decline in Chinese imports has raised some alarm bells over the strength of China’s domestic demand. Merchandise imports declined 15.2% y-o-y in February, although the slowdown is exacerbated by fewer working days this February compared to last year. However, seasonally adjusted imports data published by the NBS indicate a more positive trend in imports with growth actually accelerating to 6½% over the year from 3.4% in January. By commodity, iron ore, oil and copper were all lower over the year to date – copper recording significant declines (27.8%). Iron ore imports were 1.9% lower following a sharp increase in prices, despite a pick-up in daily steel production in February, while crude oil imports were down 2.4% over the year-to-date.
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