China: Stimulus starting to bear fruit

3 min
Mahamoud Islam
Mahamoud Islam Senior Economist for Asia

China’s stimulus is starting to have tangible impacts on the economy. Domestic demand shows some signs of improvement. First, nominal retail sales growth, a proxy of private consumption, stabilized in Jan-Feb (+8.2% y/y, similar to December), helped by tax cuts. Investment recorded a modest pick-up (+6.1% in Jan-Feb 2019 after +5.9% in 2018) supported by a rise in State Owned Enterprises and infrastructure investment. On the negative, industrial production disappointed (+5.3% y/y) held back by weaker external demand: USD denominated exports contracted by c.5% in the first two months of the year. We expect Chinese economic growth to get some traction within the year (after a low of +6.2% y/y in Q1). This improvement will be driven by (i) a generous fiscal package (5% GDP) and eased monetary conditions; (ii) reduced tensions with the US. Overall, real GDP is set to grow by +6.4% in 2019.