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Fast Comment ChinaGrowth slowed even before new tariffs hit

  1. China’s economy lost momentum in April
  2. Slightly better chance of a trade deal
  3. More stimuli to be expected
China’s economy lost momentum in April
All three monthly activity indicators fell in April and came in weaker than expected by consensus. Industrial production growth was already poised to correct down from the surprising and hardly realistic jump in March. But growth plummeted from 8.5 percent y-o-y in March to only 5.4 percent in April, hereby fully reversing the March gain. Retail sales growth fell from 8.7 percent to 7.2 percent, the lowest since 2003, and growth of fixed investments also fell (see chart).
Slightly better chance of a trade deal
Amid the escalation of trade tensions, monthly Chinese activity data might seem less important. But note that slower domestic Chinese growth weakens China’s negotiation position as China can tolerate less negative growth impact from tariffs. Thus the weak figures might increase the chance of a trade deal being reached, on the margin.
More stimuli to be expected
Both the escalating trade tensions and the markedly weak April activity figures increase the chance of more stimuli from the authorities. That will mitigate but not completely counter the trade war impact and the structural growth slowdown, and we see growth stabilising at best before slowing again later this year. Still, our full-year 2019 growth forecast of 6.0 percent is due to be revised upward following the strong GDP growth in Q1.

Source: Macrobond


Bjarke Roed-Frederiksen

Senior Economist

Latin America and China

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