Industrial production growth in China slowed to a 17-year low in the first two months of this year, fueling expectations that the “difficult child” of the Chinese economy will draw more attention from the authorities, mainly in the form of financial support.
Nevertheless, the contribution of other components of GDP has tallied with or exceeded expectations, allowing hopes to spin that the peak of the slowdown in the economy has passed. Investment in housing grew by 11.6% YoY, with a forecast of 9.50%, while retail sales lost an impressive growth rate, although they preserved the necessary firmness, rising by 8.2%. Capital investments continue to rely on the support of the government, which creates implicit guarantees of demand in the economy, for example, through infrastructure spending. This type of spending missed expectations of it rising by 4.3%.
The authorities intend to increase support for the economy in 2019, as economic growth risks falling to the 29-year low, but most measures need time to take effect. Chinese Premier Keqiang announced that the state will provide the economy with billions of dollars in the form of tax cuts and increased infrastructure spending, although the general tone of Chinese officials indicates an unwillingness to conduct massive state interventions in the economy as it was, for example, in 2016. Then the economy quickly went on the mend and caused a strong reflation impulse that swept across the world.
The output of the industrial sector grew by 5.3% in the period January-February, less than previously expected. The pace turned out to be minimal since the beginning of 2002. The forecast projected that output would decrease to 5.5% from 5.7% in the previous period.
China is trying to combine data for January and February to smooth out the distortion of data caused by the celebration of a long holiday – the Lunar New Year. This happened with exports and imports, which also show strong seasonal fluctuations, as well as with social financing, for which there was a seasonal surge of up to 4.6 trillion. dollars in January. The Central Bank urged to consider the data immediately for two months – January and February in order to better understand the dynamics of credit expansion.
Non-seasonal distortion, output grew by 6.1% over two months, the official statistics agency of China reported in annual terms.
A survey of Chinese factories, adjusted for seasonal factors, indicated a monthly decline in output in February, for the first time since January 2009. Such data naturally follow from the universal reduction in demand, both domestic and foreign due to the effect of tariffs.
On Wednesday, Trump said that he would not rush to conclude a trade deal with China, stressing that it would necessarily contain provisions for the protection of the intellectual property of American companies in China and measures to prevent theft and extortion.
Another surprise in the data was the increase in unemployment among respondents to 5.3% from 4.9% last month. However, the holidays probably left a strong imprint on employment, as some factories were closed for more than three weeks.
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