GDP growth is expected to slow down
As the United States has imposed new tariffs on some Chinese exports since September 1, the author estimates that exports may further weaken. In addition, retail sales of consumer goods may rebound slightly, real estate sales will accelerate, and infrastructure investment will strengthen, but new real estate starts, real estate investment, and manufacturing investment may slow down. The overall credit growth rate may stabilize, with the strengthening of RMB loans and the stabilization of new social financing. The author estimates that the upcoming September economic data indicators will be mixed, and the third-quarter GDP growth rate slowed to 5.9%. \Director of UBS Asia Economic Research Wang Tao
The author estimates that the upcoming September and third quarter data will show:
Affected by seasonal factors, industrial production and consumer goods retail sales may rebound slightly in September. Both the Bureau of Statistics and Caixin PMI (Manufacturing Purchasing Managers Index) both exceeded expectations, indicating that manufacturing growth momentum has improved. In September, the coal consumption of major power plants decreased from 2% year-on-year to 5% year-on-year, indicating that the year-on-year growth rate of power generation may improve, especially in coastal provinces. However, due to the implementation of environmental protection and production restrictions at the end of September, the average capacity utilization rate of large and medium-sized steel mills nationwide fell significantly in September (especially Tangshan). Considering that industrial production has weakened significantly in August, and it showed an upward trend at the end of the year, the author estimates that the year-on-year growth rate of industrial production in September may rebound from the previous low of 4.4% to 5%.
Based on the above factors, it is estimated that the year-on-year growth rate of retail sales of consumer goods may rebound slightly from the previous low of 7.5% to 7.8%, but car sales may remain weak in September.
Real estate sales may rebound. High-frequency data showed that real estate sales in 30 large and medium-sized cities in September changed from a previous year-on-year decline of 9% to a year-on-year increase of 7%, partly benefiting from a lower base in the same period last year. Considering that the target for shed reforms has been significantly reduced this year and the monetization is weakened, real estate sales in low-tier cities may still be weak. In the first seven months of this year, the transformation of China’s shantytowns started 2.07 million units (72% of the annual target), a decrease of nearly 50% from the 4.07 million units in the same period last year. Benefiting from the low base in the same period last year, it is estimated that the overall growth rate of real estate sales in September may rise to 6% to 8%. Subject to the tightening of financing conditions for real estate developers in the near future, new construction may slow down slightly.
Overall, the author estimates that real estate construction activities have weakened, and the growth rate of real estate investment has slowed slightly to 8% to 10%. Export growth continues to weaken
Export growth may further weaken. Both the Statistics Bureau and Caixin PMI’s new export orders index fell in September. However, the US ISM index and the German IFO business climate index both fell from August to September, indicating that global demand may still be weak. In addition, the United States’ additional tariffs on US$110 billion in Chinese exports have also entered into force on September 1. Therefore, export activity in September may further weaken. On the other hand, despite the low base in the same period last year, imports may still be weak. Overall, the author estimates that the dollar-denominated exports in September expanded to 6% year-on-year, while imports maintained a 6% decline, and the trade surplus narrowed to $28 billion.
The year-on-year growth rate of CPI rose slightly to 3%, while the deflation of PPI increased. High-frequency data showed that food prices in September were slightly stronger than the previous month. Among them, the pig price increased by 22% (up 71% year-on-year), poultry and egg prices rose by 10% to 13%, respectively, but the price of fruits and vegetables fell by 8% and 3% respectively. Non-food prices may increase from the previous quarter due to seasonal factors. Overall, the author estimates that the year-on-year growth rate of CPI in September slightly rose to 3%, with food prices increasing and non-food prices growing at a steady rate. On the other hand, high-frequency data showed that the price of producers’ products rose in September, with steel prices and coal prices rising slightly by 0.2% and 0.3% respectively. Both the purchase and ex-factory price indices in the Bureau of Statistics and Caixin PMI rebounded. Overall, the PPI fell by 1.3% year-on-year in September, but the chain growth rate may improve.
The overall credit growth rate may stabilize. The author estimates that the new RMB loans in September may increase to 1.55 trillion yuan, slightly higher than the same period last year. Given that property sales are generally stable and recent mortgage policies have tightened, the size of new home loans in September may remain stable. The decline in shadow credit in September may narrow slightly. High-frequency data showed that the net issuance of corporate bonds fell in September, while the net issuance of local government special bonds also fell to 180 billion yuan, both weaker than the same period last year. Overall, it is estimated that the scale of new social financing in September will be 2.15 trillion.
The third quarter GDP growth slowed to 5.9%. In the third quarter, the growth rate of consumer goods retail and fixed asset investment may be weaker than in the second quarter. In the latter case, manufacturing and real estate investment slowed down, while infrastructure investment accelerated. The nominal export growth rate remained weak in the third quarter, while imports fell year-on-year, so the trade surplus may increase slightly compared with the same period last year. From the production side, the average industrial production growth rate in the third quarter slowed to 4.7%, significantly lower than the 5.6% in the second quarter. Real estate sales may strengthen in the third quarter, but new construction may slow down. Overall, the author estimates that the third-quarter GDP growth rate slowed to 5.9%, and the growth rate of the chain also weakened.
Sino-US trade talks have restarted this week, but uncertainty still exists. Before the new round of trade talks held this week, both China and the United States released some signs of goodwill, including the time when the United States will raise the tariff rate on the US$250 billion Chinese export from October 1 to October 15. The Chinese side expressed support The company restarted the procurement of US agricultural products (including soybeans and pork) and imposed tariff exemptions on new parts of US agricultural products.
Although trade negotiations may make some progress, the author still believes that there will be greater uncertainty in the future negotiations, and there are still major differences between the two sides on some fundamental issues. It is difficult for the two sides to reach a comprehensive trade agreement before the US presidential election this year or next year. . In the baseline forecast scenario, the author still expects that additional tariffs will drag down exports (especially in the fourth quarter of this year and the first quarter of next year), and have a negative indirect impact on domestic consumption and investment, while trade-related uncertainty persists. .
Open market operating rate is expected to be lowered
Policy support is expected to continue to increase, but GDP growth may slow further. The government plans to release some of the new quotas for local government special bonds in 2020 ahead of the year and ask for more efficient use of its funds.
In addition, the financing restrictions of local platforms may also be slightly relaxed. In the fourth quarter of this year, infrastructure investment is expected to achieve medium-high single-digit growth and increase by about 10% next year.
At the same time, the author still expects the central bank to reduce the 50 and 100 basis points respectively during the year and next year, and cut the open market operating rate (such as MLF interest rate) by 10 to 15 basis points to promote a moderate rebound in overall credit growth. In addition, the government may also introduce more measures to support small and micro enterprises, promote employment, improve social security networks, and boost consumption. If employment is significantly worse at the end of this year and early next year, policy support in March next year may also be significantly enhanced.
Nevertheless, if China and the United States fail to reach a comprehensive trade agreement and the tariffs previously planned to be imposed are implemented as scheduled, the author expects that the GDP growth rate will further slow down from the fourth quarter of this year to the first quarter of next year, and will start to rebound from the second quarter. The GDP growth rate in 2020 may be 5.5%. If in the upcoming trade negotiations, the United States agrees to cancel or postpone the tariff on some products, then the author’s forecast has certain upside risks.