The author is Goldman Sachs/Gaohua China macro economist Song Yu
China is scheduled to release second quarter and June economic data in the coming days with consumer price index (CPI) and producer price index (PPI) data on July 9; trade data on July 10; money and credit data before July 16, and second quarter GDP and June industrial production and retail sales on July 16.
We expect second quarter GDP and June activity growth to show more strength.
Recent official and HSBC purchasing managers index (PMI) headline data both indicate a pick up in activity growth. The government has continued to announce a series of supportive policies, including two targeted bank reserve requirement ratio cuts, which we believe are positive for short-term demand growth.
We expect June industrial growth to be 8.9% year-on-year, up from the 8.8% growth in May. This implies sequential growth of 8.8% month-on-month, largely unchanged from the level in May.
We expect June retail sales to grow at 12.5% year-on-year, the same as 12.5% in May.
We expect second quarter GDP to be 7.5%, up from 7.4% in the first quarter. This implies sequential growth of around 6.9% quarter-on-quarter on an annualized basis, up from 5.4% in the first quarter.
We expect China’s export growth to increase, further supported by the correction of over-reporting last year. The crackdown on exports over-invoicing started in the second part of April 2013 and the impacts were clearly shown in May and June 2013 data.
Imports may continue to be relatively weak as demand for commodities used in financing trades diminishes. We expect June exports growth to be 9.5% year-on-year, higher than 7.0% in May. Meanwhile, we expect June imports to grow at 3% year-on-year, higher than the 1.5% decline recorded in May.
The implied trade balance would be a surplus of US$39.4 billion, up from the US$35.9 billion in May.
We expect CPI inflation to be 2.5% year-on-year, the same as the growth rate in May. PPI inflation is likely to be down 0.9% year-on-year, an improvement from its May decline of 1.4%.
We expect the amount of RMB new loans to be slightly above RMB1.1 trillion, higher than this May’s RMB871 billion as loans volumes typically seasonally rise in June. This number will also be higher than last June’s RMB863 billion, which was lower than usual because of the liquidity squeeze.
China’s M2 growth is also likely to rise on a low base. Stronger liquidity supply reflects the intention of the monetary authority to keep broad liquidity supply to the economy at an ample level to support activity growth. However, we believe very strong liquidity growth especially in M2 may trigger some incremental withdraw of liquidity by the central bank, so M2 growth does not deviate further from the target of 13%.
China’s total social financing aggregate growth is likely to hold firm. The composition of financing likely continued to shift towards standard products such as RMB loan and corporate bonds and away from trust loans.
(The article has been edited for clarity)
