China | Easing measures stabilized growth while headwinds persist

A batch of October economic indicators is announced today, together with the credit data released yesterday,
suggesting that the recent policy easing helped to stabilize economic growth to a certain degree. However, headwinds
from the unsettled trade war with the US and domestic deleveraging still weigh on growth. As such, we expect
monetary and fiscal policy to become more pro-growth in the rest of the year and the next year, although the
authorities remain vigilant on financial vulnerabilities including indebtedness in the corporate and shadow banking. We
maintain our 2018 growth projection at 6.5% y/y, in line with the official target rate while subject to some upside risk.
October economic indicators are mixed: fixed asset investment increased to 5.7% ytd y/y from 5.4% ytd y/y previously
(consensus: 5.5% ytd y/y), indicating investment was supported by the recent easing measures; industrial production
accelerated from 5.8% y/y to 5.9% y/y (consensus: 5.8% y/y). However, retail sales significantly dropped to 8.6% y/y
from 9.2% previously, mainly driven by base effect and sharp dip of auto sale. (Table 1; Figure 3-8)
October credit data significantly declined despite the authorities’ recent easing measures, as the transmission
mechanism from monetary policy to credit is still weak: M2 growth dropped to 8% y/y from 8.3% previously, new yuan
loans dipped to RMB 697 bn from 1,380 bn while total social financing declined to RMB 728 bn from 2,168 bn.
Altogether, our MICA model yields a monthly GDP prediction at 6.5%, in line with the growth moderation. (Figure 2)

Fuente: BBVA

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