China | Growth slowdown continues

July economic indicators are announced today, together with the previously released credit data, suggesting that growth slowdown continued in July. In particular, fixed asset investment, industrial production and retail sales all dropped from the previous readings and below the market expectations. This indicates that headwinds mainly from domestic deleveraging and the unsettled trade war with the US, continued to weigh on growth. That being said, the growth is most likely to moderate through the rest of the year. We predict the monetary policy will become more easing while fiscal policy will be more supportive for growth. Altogether, we maintain our 2018 growth projection at 6.5% y/y, compared with the official target rate at 6.5% and the Bloomberg consensus at 6.6%.

July economic indicators are lacklustre: Fixed asset investment decreased to 5.5% ytd y/y from 6% ytd y/y previously (consensus: 6% ytd y/y), indicating investment slowed down due to the tightening regulation measures and domestic deleveraging; retail sales decelerated to 8.8% y/y from 9% y/y in the previous month (consensus: 9.1% y/y); industrial production remained at a low growth rate at 6% y/y as of the last month (consensus: 6.3% y/y). Growth slowdown also pushed up the jobless rate from 4.8% in the previous month to 5.1% in July. (Table 1; Figure 3-8)

July credit data moderated as well: Although M2 growth increased to 8.5% y/y from 8%, total social financing and new yuan loans both decreased to RMB 1,040 billion and RMB 1,450 billion, respectively. Altogether, our MICA model yields a monthly GDP prediction at 6.7% (prior forecast: 6.7%), in line with the lacklustre economic performance. (Figure 2)


Fuente: BBVA Research

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