China: Economic recovery loses steam – UOB

Economist at UOB Group Ho Woei Chen, CFA, reviews the latest set of data releases in the Chinese economy.

Key Takeaways

“China’s Apr data largely missed expectations which increased concerns that its economic recovery momentum has failed to sustain. The year-on-year growth rates of industrial production and retail sales were bumped up by the low comparison base from Shanghai lockdown last year but were slower than expected, particularly for industrial production.”

“The labour market recovery is still uneven while new entrants and fresh graduates are still facing hiring difficulties as seen in the surge in youth unemployment to record high.”

“Market’s expectations of the rebound in China may need to be toned down as the slowdown in external demand is exerting a far greater downside pressure on China. Furthermore, the latest data showed that China is still undergoing a property market downturn which continued to hamper investment and keep the consumer sentiment soft.”

“PBOC kept the 1Y medium-term lending facility (MLF) rate unchanged at 2.75% in May, the 9th consecutive month that it has been held steady. The central bank continued to maintain ample liquidity with net liquidity injection of CNY25 bn via MLF this month, bringing total net injection to CNY604 bn in the first five months via the MLF tool.”

“We maintain our call for another RRR cut this year but see less chance of a resumption in interest rate cut.”