ING’s Lynn Song highlights that China’s April data showed broad-based weakness in domestic activity, with retail sales, industrial production and fixed asset investment all disappointing. Despite a strong first quarter and resilient exports keeping growth targets in sight, the sharper April deterioration raises downside risks. At the same time, rising PPI and non-food inflation complicate stimulus decisions for policymakers.
Second quarter growth slows as prices rise
“Disappointing April economic activity suggests growth will decelerate in the second quarter, after the first quarter comfortably beat expectations. A strong first quarter and continued resilience in exports suggest that China remains on track to meet its growth targets. But the sharper-than-expected deterioration in April’s data highlights downside risks and should be seen as a warning sign that additional stimulus might be needed to stabilise the domestic side of the economy.”
“On the other hand, we see signs that reflation momentum is strengthening in China. PPI inflation and non-food inflation just hit 45-month highs, with further price pressures likely still ahead. Luckily for China, this rising inflation backdrop stems from a near-deflationary environment over the past few years.”
“Thus, the People’s Bank of China doesn’t face the rate hike pressure that many global central banks are now facing.”
“Nonetheless, this combination of downside growth risks and upside inflation risks highlights the dilemma for policymakers. We’ve seen limited urgency for stimulus so far this year, but if data continue to deteriorate, this could change soon.”
“Investment appetite has been very soft in the post-pandemic years. One element behind this is the impact of inflationary expectations. It at least is expected to turn around this year, though it will take some time before it’s reflected in markets.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
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