Growth Will Likely Remain Lacklustre

We published a note on how to track Chinese growth in real-time using financial and commodity market prices. In these weekly reports, we update the indicators to help us track growth. The latest data shows:

• Our headline China growth indices remain bearish, albeit they have improved over the past two weeks. Our market-based YoY growth tracker continued its bounce, supported by a resurgence in commodity prices (Chart 1 and Table 1). Meanwhile, our economic data-based tracker improved last week on the release of June electricity and import data (Chart 2 and Table 2).

Updates to Data and Policy

• There was little new data released over the past week. Industrial profits (+0.8% YoY; +1.0% YTD YoY) returned above year-earlier levels in June thanks to Shanghai’s reopening. Next week there will be updates to China PMIs which Bert sees moving slightly lower but remaining above 50.
• Aside from data, there were three key updates. First, China’s state and party leaders have all been vaccinated with domestically produced vaccinations. Importantly, it’s a suggestion towards the population that vaccination is good for you. Still, there is a long way to go before all Chinese elderly are sufficiently vaccinated. Second, the quarantine period is being reduced. There are reports it could reduce to three days. Third, the July Politburo reinforced the need to ‘stick to Covid Zero’ but also ‘ensure key functions of economy and society maintain orderly operation’. So, while growth won’t slump to recessionary levels, it will fall short of the initial 5% target. And as a result, Bert sees the Chinese economy growing at a lacklustre 4% through 2H.
• Elsewhere, spluttering Chinese growth will hurt exports to the region. This is a problem for Germany in particular. Two-thirds of German growth between 2009 and 2019 came from net exports. The key export market is China. Bilal cover’s how to play German weakness in a recent note and our latest webinar.

Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.

Ben Ford is Researcher at Macro Hive. Ben studied BSc Financial Mathematics at Cardiff University and MSc Finance at Cass Business School, his dissertations were on the tails of GARCH volatility models, and foreign exchange investment strategies during crises, respectively.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)