China: Signs of Further Slowdown at the Start of Q2

Following China’s disappointing growth performance in the first quarter, more recent leading economic indicators have underlined worries that the economy may be continuing to lose momentum going into the second. This was underscorred by industrial production data in April, which reported a 9.3% rise from a year earlier. While this figure was up on the 8.9% posted in March, it was nevertheless below market expectations. In other data releases, softness was noted in fixed asset investment growth during the first four months of this year. A weaker-than-expected gain of 20.6% (y-o-y) was recorded compared to 20.9% in the year-to-date in March. Despite the disappointing economic growth picture of late, not all recent indicators of economic activity have been downbeat, though. For example, April data for nominal retail sales was roughly in line with market expectations (+12.8% y-o-y), while real estate investment picked up slightly in the year-to-date in April and activity in the housing market appeared buoyant over this period. On a further encouraging note, the official purchasing managers’ index (PMI) edged up slightly from 50.6 in April to 50.8 last month. Although the latest reading was still just marginally above the neutral level of 50, the May figure marked the eighth straight month that the PMI came in above 50, which indicates expansion in the sector. However, with China still facing headwinds from sluggish growth in key export markets and domestic demand remaining on the weak side, the economy continues to face increased downside growth risks in 2013.

Consensus growth expectations have edged down again this month, while nominal retail sales and fixed asset investment forecasts have also weakened.

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