China’s economic recovery is no recovery at all.
Last week, I called+ the situation “vexingly convoluted,” but April’s activity data provided some clarity: It’s bad.
The figures should’ve been nominally impressive. After all, China is lapping the Shanghai lockdown comps. When March’s activity data was released last month, I not-so-gently noted that any beats were “meaningless.” I was referring to the easy base.
Fast forward a month, and China couldn’t clear the lowest of low bars. Industrial output rose just 5.6% in April versus the same month last year. I can’t emphasize enough how poorly that bodes. Consensus expected an increase twice that size.
Retail sales were likewise disappointing. The 18.4% increase sounds impressive, but again, consider the comparison month. Economists expected a YoY gain of 22%.
Tuesday’s release added to a long list of underwhelming data, including contractionary manufacturing PMIs, falling imports, lackluster credit growth and anemic CPI and PPI figures which together suggested demand is very soft.
“That’s it?” an incredulous Wei Yao and Michelle Lam asked of April’s activity numbers. “April data were vastly disappointing across the board, particularly in light of the unchallenging bases,” the SocGen duo wrote. “While the strengthening in services was considerably underrepresented in monthly statistics (i.e. the data miss overstated the economic weakness), the aggregate picture, as reflected by credit, inflation and labor market data, looks like one of weakening momentum overall, with a contracting goods sector and a L-shaped housing recovery almost overwhelming the continued services normalization,” they added.
The youth unemployment rate is now above 20%. I doubt that’s going to spark a revolution, but it isn’t encouraging. One assumes Xi wants young people to have jobs, “idle hands” being the “Devil’s workshop” and such.
Note that the jobless rate for 16-24 year-olds never retraced the spike seen during the Shanghai lockdown period. “University graduating season has not even started,” SocGen’s Wei and Lam remarked. “This data point alone should spur some policy actions.”
The PBoC is widely expected to ease further, but it’s always a question of which tools they’ll employ, when and in what magnitude. The central bank assiduously adheres to talking points centered around the idea that monetary “flooding” is inadvisable, and that “prudence” is paramount. That’s hard to argue with in the abstract, but with CPI running at 0.1%, PPI squarely in deflation and the data uniformly weak, the door is open for policy support, particularly given that the Fed is poised to stop hiking rates, which reduces policy divergence-related currency risk.
China’s faltering recovery is undermining the prospects for the global economy. The latest installment of BofA’s Global Fund Manager Survey cited “fading optimism,” noting that a net 55% expected a stronger Chinese economy in this month’s poll. That was down 28 points from April’s survey.
The lackluster recovery could dent the case for EM stocks, as illustrated in the visual from the BofA poll.
China’s bureaucrats were forthcoming on Tuesday, describing the global outlook as “complex and grim.”
“Domestic demand still looks insufficient,” the statistics office said, adding that the economy’s “internal drive for rebound is still not strong.”
