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11 Mar 2015
Soft data raising concerns about China’s growth story – Danske
FXStreet (Barcelona) - Senior Analyst at Danske Bank, Flemming J. Nielsen, reviews the recent Chinese data releases to conclude that the soft data is indicative of – downward risk to GDP forecast of 7.0%, further cut in interest rates and RRR, and rise in speculation that PBoC might allow CNY to depreciate.
Key Quotes
“For January and February as a whole, growth in fixed asset investment eased to 13.9% y/y (consensus: 15.0% YTD, y/y) compared to January and February last year after increasing 15.0% YTD, y/y in December.”
“Retail sales for January and February as a whole eased to 10.7% y/y (consensus: 11.6% y/y) compared with the same period last year after increasing 10.9% y/y in December last year.”
“On the surface, today’s data suggest that there could already be downside risk to the 7% growth target for 2015 the Chinese government announced last week. We will probably have to cut our 7.2% GDP growth forecast for 2015. That said, we would be more confident in a downward revision if the weakness evident in the hard industrial production data is also confirmed in the manufacturing PMIs in the coming months.”
“With downside risk to the government’s growth target, it also appears that there will be more monetary and fiscal easing in China than we have assumed so far. The reserve requirement could be cut by more than 100bp and another interest rate cut looks increasingly likely.”
“The weak data could also increase speculation that China will allow its currency to depreciate, although we still expect the People’s Bank of China (PBoC) to keep the current daily trading band broadly unchanged.”
Key Quotes
“For January and February as a whole, growth in fixed asset investment eased to 13.9% y/y (consensus: 15.0% YTD, y/y) compared to January and February last year after increasing 15.0% YTD, y/y in December.”
“Retail sales for January and February as a whole eased to 10.7% y/y (consensus: 11.6% y/y) compared with the same period last year after increasing 10.9% y/y in December last year.”
“On the surface, today’s data suggest that there could already be downside risk to the 7% growth target for 2015 the Chinese government announced last week. We will probably have to cut our 7.2% GDP growth forecast for 2015. That said, we would be more confident in a downward revision if the weakness evident in the hard industrial production data is also confirmed in the manufacturing PMIs in the coming months.”
“With downside risk to the government’s growth target, it also appears that there will be more monetary and fiscal easing in China than we have assumed so far. The reserve requirement could be cut by more than 100bp and another interest rate cut looks increasingly likely.”
“The weak data could also increase speculation that China will allow its currency to depreciate, although we still expect the People’s Bank of China (PBoC) to keep the current daily trading band broadly unchanged.”