GDP was uninspiring, but much of the March data suggests that things are back on track
At 6.1% Y/Y, Q1 GDP was disappointing to many - but also inside the expectations of every rational observer. With exports down by 20% Y/Y, this contraction is unsurprising if unwelcome.
Industrial production data for March showed a Y/Y increase of 8.3% with western industrials registering growth of 11.8% Y/Y vs. 5.2% for central regions and 3.7% for the export dependent eastern coastal regions. While production has remained resilient, profits contracted sharply with NBS reporting a 37.3% Y/Y decline for large enterprises despite the respite provided to refiners by falling oil prices.
Critically, the sequential improvement in retail sales for March suggests real consumer resilience as the increasing credit and liquidity we discussed on Monday ( “Gushing “), combined with a 11.2% Y/Y real increase in urban disposable income for the quarter (the rural population realized 8.6% cash income growth in the same period) and CPI which declined by 1.2% Y/Y for March –the second sequential negative growth month, Chinese shoppers appear to be willing to spend.
For our macro view, perhaps the most important data point release last night was fixed investments which clearly demonstrated that increasing stimulus juice is hitting the OX’s bloodstream at 28.5% Y/Y up from 26.5% in Feb. This continuing growth (particularly felt in the central and western regions) continues to support our thematic conviction in reflation driven by proximity to the “customer” as the stimulus measure adopted by Beijing continues to improve prospects for pragmatic commodity centric economies.
With Q1 headline data Inside the low of the anticipated range, but signs of life in March data the market’s reaction is divided as both the glass half-full and half-empty camps see support for their thesis. From our perspective, although the numbers are far from pretty, there is a clear indication that the Chinese economy has begun to find its legs.
Andrew Barber
Director