Chinese data this morning was a touch weaker than expected but nothing that points to an overall hard landing. The data overall still paints a picture of stabilisation. However, there is still no sign of recovery in Q4. However, trade data last week pointed to a rebound in import growth suggesting that a moderate recovery is under way. We continue to look for a cut in the interest rate soon to support the economy. We also still expect a moderate recovery in coming quarters as we look for (a) an end to the depletion of inventories, (b) an improvement in construction driven by higher home sales this year and (c) a rebound in export growth. However, the Chinese economy is expected to stay fragile.
The data continues to show an ongoing significant rebalancing in the Chinese economy with severe challenges in the manufacturing sector whereas service is pulling more or less all growth. Service sector nominal growth was 11.9% versus nominal growth in industry and construction of only 0.2% y/y. The manufacturing sector is struggling with severe overcapacity in the 'old' sectors in steel, cement and mining.
While the economy is, overall, still in what could be called a soft landing, the state of manufacturing is close to what we would say is a hard landing. This is why what may be a soft landing for China is in many parts of the world being felt as a very hard landing. This is especially the case for commodity exporting countries such as Brazil and Russia. Countries that export more to the service sector, on the other hand, will not feel the slowdown as hard.
To read the entire report Please click on the pdf File Below