China Macro: March data confirm improving momentum – Chinese data published earlier today suggest a rebound in economic activity following a weak end to 2018, amid fading headwinds. China’s official GDP growth surprised to the upside in Q1, remaining at 6.4% yoy versus a consensus expectation of 6.3% yoy (including ours). Meanwhile, the activity data for March published today clearly pointed to improving momentum. Industrial production growth surged to 8.5% yoy (Jan-Feb: 5.3%) – with manufacturing output particularly strong – although the data is likely impacted somewhat by Lunar New Year base effects (with a sharp drop in growth in March 2018). Fixed asset investment also accelerated further, rising to 6.3% yoy ytd (from 6.1% in Jan-Feb). This was supported primarily by a further improvement in state-led investment, a result of fiscal stimulus measures. Rounding out the activity data, retail sales growth also surged to 8.7% yoy (Jan-Feb: 8.2%).
The March PMIs published some weeks ago also showed a clear uptick from February, and the strong activity data (particularly industrial production) contributed to a jump in Bloomberg’s monthly GDP estimate, to 7.92% yoy in March (Feb: 6.63%) – the highest since December 2012. We see rising upside risks to our 2019 annual growth forecast of 6.3% yoy, which currently is slightly above consensus, but we leave our forecast unchanged for now. Policywise, we do not expect further big changes at this stage, with Beijing likely to wait for further confirmation of the recovery. That said, we expect the PBoC to strike a less dovish tone, while we have lowered our expectation of further RRR cuts in the remainder of 2019 to 100bp, from 150bp. For more background, see our China Watch – Springtime, so here are the green shoots published earlier today. (Arjen van Dijkhuizen)