China’s May economic data in spotlight as investors fret about recovery, lack of action
- Previous month’s data intensified concerns among investors and economists, but some say China’s post-Covid recovery has merely stalled, while others remain on the fence
- Beijing should release trade and inflation data later this week, while figures on unemployment, investment, industrial output and retail sales are due June 15
The critical question of whether China’s post-Covid recovery is losing or gaining momentum has investors and market watchers – both at home and abroad – clamouring for the latest data that could help them read the tea leaves.
“Sentiment towards China is outright negative at this moment,” Macquarie Capital economist Larry Hu said after having spoken with clients.
Weak economic data from April, in terms of manufacturing activity, consumption and youth employment, sparked concerns across the foreign business community and among domestic academics while dampening investor confidence in the world’s second-largest economy.
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In his research report released on Friday, Hu listed 10 frequently asked questions among investors, including about the deflationary trap, local debt crisis, China-US relations, and whether the economic recovery honeymoon is over.
But despite China’s disappointing figures, he believes that its recovery has merely stalled, not ended.
“As the recovery broadens over time, the economy will enter another upward spiral with stronger demand and better confidence,” he projected.
Beijing is due to release trade and inflation data later this week. Unemployment, investment, industrial output and retail sales figures should be published on June 15.
Some major international investment banks have already lowered their full-year estimates for China’s economic growth. Last month, Nomura cut its forecast for China’s 2023 gross domestic product (GDP) growth to 5.5 per cent from 5.9 per cent, while JPMorgan trimmed its full-year GDP growth estimate to 5.9 per cent from 6.4 per cent.
Meanwhile, Beijing has been trying to bolster market confidence with charm offensives. The red carpet has been rolled out in recent weeks for executives of multinational firms, including Tesla CEO Elon Musk, Starbucks CEO Laxman Narasimhan and JPMorgan Chase CEO Jamie Dimon.
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However, in an interview with Bloomberg TV on Wednesday, Dimon warned that uncertainty caused by the Chinese government could hurt investor confidence at home and abroad.
“If you have more uncertainty, somewhat caused by the Chinese government … it’s going to not just change foreign direct investment, it’s going to change the people here – their own confidence to invest,” Dimon said.
Zhu Haibin, JPMorgan’s chief China economist, also expressed concern in a note, pointing to labour-demand conditions remaining on the soft side.
China’s youth unemployment rate hit an all-time high of 20.4 per cent in April, and it could keep rising as 11.58 million fresh university graduates enter the labour market this summer.
The market may have extrapolated too much from the monthly data fluctuations
“We believe this is just a hiccup,” Morgan Stanley economists wrote in its midyear outlook on Sunday, referring to the weak economic data. “The journey of recovery is likely to last until the fourth quarter of 2024.”
The Wall Street bank, which has long been bullish on China’s growth prospects, maintained its full-year GDP growth estimate at 5.7 per cent, expecting a pickup of economic activities in the second half of this year.
Beijing set its 2023 growth target at around 5 per cent.
Standard Chartered Bank has also kept its China GDP forecast of 5.8 per cent unchanged since late last year, saying there is still a moderate recovery and a good chance of achieving that target.
“The market may have extrapolated too much from the monthly data fluctuations,” said its chief Greater China economist, Ding Shuang.
