China’s economic recovery is starting slowly.
After China’s largest vacation of the year, migrant workers have mainly returned to work, and children have returned to school this week.
Despite the termination of mainland China’s COVID limitations in early December, preliminary figures show that overall growth is still not firing on all cylinders.
Official loan figures for January, for example, showed a year-on-year rise in loans to firms but a dramatic reduction in loans to consumers.
“The mixed data send a clear message that markets should not be too bullish about growth this year,” Nomura’s chief China economist, Ting Lu, said in a report Monday.
“This pattern has rich implications for different asset classes and commodity types, so closely tracking these high-frequency data is warranted,” he said.
According to a Nomura analysis using mid-February data, city road and subway traffic have returned to pre-pandemic levels in 2019. According to the data, freight transport turnover is still down from a year ago.
It noted that new house sales were below last year’s levels, mostly due to lower sales in mid-sized cities, which weighed on building activities.
Sluggish mortgage demand resulted in a significantly faster reduction in medium- and long-term household loans than in short-term loans.
“The jobless rate remains high, keeping household confidence low,” noted Zhiwei Zhang, president and senior economist at Pinpoint Asset Management, in a note regarding January’s lending figures. “I expect household confidence to rise in the next months as well, although it will most likely be a slow process.”
Due to Lunar New Year biases, China’s National Bureau of Statistics does not separate retail sales, industrial production, or fixed asset investment data for January. The Gregorian calendar dates of the festival change each year.
However, the agency revealed January inflation statistics, which indicated weak demand as consumer prices rose 2.1% year on year—sslightly less than what Reuters’ survey of economists projected. Excluding food and energy, the core consumer price index increased by 1% in January, returning to the rate seen in June 2022.
The producer price index, which gauges factory input prices, fell by 0.8% in January compared to the previous year, above the 0.5% reduction predicted by a Reuters poll.
According to Reuters, China’s yuan sank to a five-week low versus the US dollar on Monday as data revealed South Korea’s average daily exports for the first ten days of February declined by 14.5% after adjusting for the Lunar New Year break.
Policy outlook
Policymakers in China are anticipated to continue to assist the domestic economy. It remains to be seen how demand from China’s economy takes off following the Lunar New Year vacation as firms resume work and travel.
According to Robin Xing, chief China economist at Morgan Stanley, in-person encounters are especially vital for doing business in China, and such connections were difficult to arrange last year.
He anticipates that overall policy will be permissive this year, with regulators returning to “growth-focused policy pragmatism.”
It’s “the most favourable backdrop for private sector “animal spirits” in four years,” according to Xing. He predicts that China’s GDP will expand by 5.7% this year.
In March, Beijing is largely likely to establish a GDP target of 5% or higher.
While warning of a mixed picture, Nomura’s Lu has boosted his GDP prediction to 5.3% due to the pandemic and COVID restrictions ending sooner than projected.
“We still believe inflation is not a major concern in China this year,” he said, “and we expect policy to remain accommodative in 2023.”
