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Fast Comment ChinaMay data confirm that the worst is not over

  1. Industrial sector hit by trade war
  2. Rebound earlier this year was not ‘real’
  3. Only a minor stimulus-driven rebound
Industrial sector hit by trade war
Growth in industrial production fell from 5.4 percent y-o-y in April to only 5.0 percent in May, the lowest on record, except for a few new-year distorted months back in the early 2000s. Also, fixed investment growth disappointed by slowing from 5.7 percent to 4.4 percent in ordinary y-o-y growth rate terms. The only positive surprise was retail sales growth, which increased more than expected by consensus, indicating some resilience among households to the overall slowdown.
Rebound earlier this year was not ‘real’
Remember that growth in all three activity indicators rebounded in March, only to fall back again in April. The lacklustre May reading confirms that the March rebound was primarily seasonal noise and not a true stimulus-led rebound and that growth is indeed slowing as the fallout from the trade war is kicks in. Note that the trade war escalated during May. June production data might be even worse, as some production and exports were likely to have been brought forward to May in anticipation of the recently-announced new round of US tariffs on imports from China.
Only a minor stimulus-driven rebound
Our expectation of a stimulus-led rebound has faded amid the escalation in the trade war and the fact that economic data have weakened once again. Unless some kind of trade agreement is signed soon, growth will continue to slow. Further economic stimulus will mitigate, but not completely counter, the impact of the trade war and the slowdown in structural growth.


Bjarke Roed-Frederiksen

Senior Economist

Latin America and China

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