China: Growth momentum remained weak in August – Standard Chartered

Real activity appears to have softened in August amid weak domestic demand. We maintain our 2024 growth forecast at 4.8%, but see some downside risks. We expect more RRR and policy rate cuts by year-end, faster fiscal spending under the current budget, Standard Chartered’s economists Hunter Chan and Shuang Ding note.

5% growth target looks increasingly challenging

“Growth momentum remained soft in July-August following a significant q/q slowdown in Q2. August industrial production (IP), retail sales and fixed asset investment (FAI) growth all fell short of expectations on subdued domestic demand and adverse weather. The unemployment rate rose further to 5.3% from 5.2% in July, partly due to college students graduating. Meanwhile, the 3Y CAGR (with 2021 as the base year) for most real activity indicators improved, balancing the generally negative picture.”

“Specifically, IP growth edged down to a five-month low of 4.5% y/y in August from 5.1% in July. Seasonally adjusted retail sales were about flat after a brief rebound in July. Services production index growth fell to a four-month low of 4.6% y/y. Private investment contracted for a second straight month, dragged down by the weak real estate sector. Infrastructure investment growth also slowed further. GDP growth remained below 5% y/y in August, according to our estimate.”

“We maintain our 2024 growth forecast at 4.8%, as we expect more policy support by year-end. We expect the government to focus on accelerating government bond issuance and fiscal spending to fully utilise the fiscal space under the approved budget. We also expect the People’s Bank of China (PBoC) to cut the reserve requirement ratio (RRR) by 25bps this month and lower the policy rate – i.e., the 7D reverse repo rate – by 10bps in Q4.”