Exports and industrial production -- the two forces protecting China from a more serious economic slowdown - are beginning to weaken, according to new analysis from Permutable.
China’s economy grew 4.3% year on year in the second quarter, supported by resilient factory output and a sharp rise in exports. But household spending remained subdued, private investment contracted and the property market continued to weigh on confidence.
Permutable’s Global Macro Sentiment Indices show that expenditure-growth sentiment fell from close to two standard deviations above its historical norm at the beginning of the year to −1.7σ by July 16.
Key takeaways:
· Trade-activity sentiment has fallen from +3.8σ in January to neutral, despite a sharp acceleration in recorded exports. Industrial sentiment has also moved below neutral, even as official production data remain comparatively strong.
· Retail sales grew just 1% in June, private investment declined 8.5% during the first half of the year and property investment fell 18%.
- Trade sentiment has faded despite strong official shipment data.
- Industrial sentiment has slipped below neutral while current output remains resilient.
· A stabilization in trade and industrial sentiment would suggest that the external buffer is holding. A sustained move below neutral would indicate that weakness is spreading into the sectors previously supporting growth.
“China’s factories and exporters have been carrying an increasingly fragile domestic economy. Household demand has weakened, the property channel has not reopened and overseas buyers have absorbed much of the production the home market could not,” says Jack Watson, market analyst at Permutable. “Our signals now show the environment around trade and industrial activity becoming less supportive. This is not evidence that China’s factories are already contracting. It is a warning that the final sectors containing the slowdown may be starting to inherit it.”
