China: Credit surge keeps growth stable in Q1, but will the taps stay on? - NAB

Gerard Burg, senior economist at NAB, notes that the China’s official data showed that the economy grew by 6.4% yoy in the first quarter of 2019, unchanged from the rate in Q4 2018, which means that growth remains at its equal slowest rate (with the trough of the GFC in Q1 2009) since 1990.

Key Quotes

“Deleveraging had a major impact on growth last year, but the outlook for this program is quite uncertain (given strong growth in new credit in Q1). Our forecasts for China’s growth are unchanged – with the structural slowdown of the economy set to continue in coming years. Growth is forecast at 6.25% this year, 6.0% in 2020 before dipping below 6% in 2021.”

“China’s industrial production grew remarkably strongly in March – increasing by 8.5% yoy, compared with just 5.3% yoy in January and February. This was the largest increase in industrial output since July 2014.”

“Compared with the levels across January and February, both exports and imports rose in March. The larger increase in exports leading to a wider trade surplus, totalling US$32.6 billion (up from US$21.9 billion in the first two months).”

“Growth in China’s fixed asset investment was more than offset by higher investment goods prices, meaning that our estimate of real investment was a little weaker – at 5.8% yoy in March (down from 6.4% yoy in the first two months).”

“Real retail sales dipped slightly in March – to 6.7% yoy (compared with 7.1% yoy across the first two months of the year).”

“New credit issuance remained strong in March, with a surge in bank loans accounting for the largest share of the increase. In the first quarter, new credit issuance totalled RMB 8.2 trillion – an increase of 40% yoy.”