Following two clear recessionary indicators out of the US in the form of the recently reported factory orders...
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and Wholesale Trade...
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overnight it was China's turn to remind the US that things can always get worse when it reported retail sales, industrial production and fixed asset investment all of which slid about as fast as the C:\China\economy\goalseek.xls would allow them, and wildly missed expectations, suggesting that China will strugle significantly even with hitting its downward revised 7% growth bogey. Putting this ugly data in context, China's overall industrial production just saw its weakest year-over-year reading ever outside the global financial crisis.
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Here is Goldman's summary:
- Industrial production (IP): 6.8% yoy in Jan-Feb (GS and Bloomberg consensus: 7.7%); December: 7.9% yoy. Sequential IP growth (Jan-Feb over Dec) -4.4% annualized (seasonally adjusted by GS). December: +16.8% SA, annualized.
- Retail sales: 10.7% yoy in Jan-Feb (GS: 11.0%, consensus: 11.6%); December: 11.9% yoy.
- Fixed asset investment (FAI): +13.9% yoy in Jan-Feb (GS: 14.0%, consensus: 15.0%). December: 15.0% yoy.
- Property FAI: + 10.4% yoy in Jan-Feb, from 2014 full year growth of 10.5% yoy.
- Infrastructure FAI: + 21.7 % yoy, vs 21.1% yoy for full year 2014.
- Manufacturing FAI: +10.6% yoy, down from 13.5% yoy for full year 2014.
- Property sales (floor space sold): -16.3% yoy (versus -7.6% in 2014). New starts: -17.7% yoy vs 2014 full year -10.7%. Floor area under construction +7.6% yoy in Jan-Feb (vs. 9.2% yoy in 2014)
Activity data for the combined January-February period (the NBS releases these two months together given the difficulty of adjusting for Chinese New Year effects) was significantly weaker than expected across IP, FAI, and retail sales. For overall industrial production, this was the weakest year-over-year reading ever (China’s IP data starts from 1995) outside the global financial crisis.
We believe the weakness is primarily a reflection of genuinely weak domestic demand. This in turn was a function of weaker fiscal outlays and less aggressive administrative policy support for FAI (compared with late 2014), as well as seasonal effects of the heightened anticorruption campaign (which are particularly evident around the traditional gift-giving period of Chinese New Year). Export momentum is more difficult to assess given large Chinese New Year effects, but does not look to have been particularly strong either (the bulk of the rise in trade surplus has come from particularly weak import, on both price and volume effect) The yoy growth of industrial goods export delivery fell from 4Q 2014 level while yoy customs exports growth improved, possibly reflecting the difference between time of production and shipment.
Since the NBS no longer releases January and February activity data separately we cannot gauge if there was an improvement in February from January level. This is unfortunate since had February IP data shown an improvement despite downward Chinese New Year distortions, as happened to both the official and HSBC PMI series, we would be able to know if there indeed has been a sequential improvement on the back of more aggressive policy support.
Given this set of exceptionally soft data, we believe the government will certainly loosen policy further, especially in terms of administrative measures to encourage fiscal outlays, in the coming months. This should lead to at least some pickup in sequential activity data.
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That's the bad news. The good news is that since every economic action has a more than equal and opposite central bank reaction, Goldman's conclusion is that "combined January-February activity data surprised significantly on the downside, which increases the likelihood of additional policy easing in the near term."
So just how much longer do we have to wait until the inevitable moment when the last marginal central bank joins the global currency war and starts "printing money" on its own, finally pushing the world over to the next escalation level in the "[insert noun] wars" chain?
