Hello, forex friends! Now that China’s data dump is mostly over, it’s time for another roundup of the most important economic reports.
Note: As with all Economic Snapshots, there are nifty tables at the bottom, so you can skip to those if you’re a forex trader who’s in a hurry. The bullet points provided highlight the underlying details and trends that give the numbers their proper context, however.
- China’s Q1 2017 GDP grew by 1.3% quarter-on-quarter.
- This is the slowest reading in four quarters and marks the third quarter of slowing growth after peaking at 1.9% back in Q2 2016.
- Year-on-year, GDP grew by 6.9%, which is the fastest rate of annual growth in six quarters.
- This also marks the second quarter of faster year-on-year growth.
- Furthermore, this means that China is currently on track to hit the PBoC’s 2017 GDP target.
- For reference, the PBoC’s target for annual GDP growth in 2017 is around 6.5%.
- No detailed breakdown using the output approach yet.
- However, the official press statement from the National Bureau of Statistics of China (NBS) notes that growth was driven by the 7.7% growth in the tertiary industry, which refers mainly to the service sector.
- The other main driver was the 6.4% increase in the secondary industry, which includes manufacturing, mining, construction, and utilities.
- No detailed breakdown using the expenditure approach as well.
- However, the press statement also mentioned that investments in fixed assets grew by 9.9% year-on-year in Q1 2017.
- Consumer spending was also apparently a driver, since retail sales increased by 10.0% year-on-year in Q1.
- As for trade, exports grew by 14.8% year-on-year.
- This was partially offset by the 31.1% year-on-year increase in imports.
- The headline reading for China’s CPI fell by 0.3% month-on-month in March.
- This marks the second consecutive negative reading after February’s 0.2% tumble.
- The biggest drag was the 1.3% fall in food prices, which was due mainly to cheaper fresh vegetables.
- The 0.4% slide in the cost of transportation and communications was also a drag.
- And the same can be said of the 0.2% fall in the cost of education, culture, and recreation.
- All other CPI components printed an increase.
- Year-on-year, CPI grew by 0.9% in March.
- This is a tick higher than February’s +0.8%.
- Even so, this is still the second poorest reading in 26 months.
- The weak reading in February was due to the 2.4% slump in food prices, due primarily to the 26.0% drop in the price of fresh vegetables.
- In March, food was the only drag, plunging by another 2.4%, thanks to the 27.9% slump in the price of fresh vegetables.
- Most food items are stripped from the core reading, which is why it accelerated from 1.8% to 2.0%.
Business Conditions & Sentiment
- The official manufacturing PMI reading from NBS improved slightly from 51.6 to 51.8.
- This is the highest reading since April 2012.
- The higher headline reading was driven mainly by production index, since it jumped from 53.7 to 54.2.
- It also helped that the new orders index improved from 53.0 to 53.3.
- The new export orders sub-index, in particular, improved from 50.8 to 51.0.
- The manufacturing PMI report from Caixin/Markit disagrees with NBS, since Caixin/Markit’s PMI reading deteriorated from 51.7 to 51.2.
- Moreover, commentary from Caixin/Markit noted that “growth in production and new orders slowed since February, with new export sales increasing at the weakest pace in three months.”
- This obviously goes against NBS, since NBS printed an improvement in its production and new orders indices, including its new exports orders sub-index.
- Moving on, the official non-manufacturing PMI reading for March jumped from 54.2 to 55.1.
- This is the best reading since May 2014.
- Interestingly enough, the headline reading jumped, even though most of the sub-indices actually deteriorated.
- Anyhow, domestic demand seems to be picking up, since the new orders index rose from 51.2 to 51.9.
- Meanwhile, the foreign new orders sub-index fell from 50.1 to 48.8.
- As for the service PMI reading from Markit/Caixin, it slid from 52.6 to 52.2.
- This is the weakest reading in six months.
- The weaker reading was blamed to the “new business sub-index [showing] its lowest reading since last September.”
- Moving on, total industrial production in China grew surged by 7.6% year-on-year in March.
- This is the fastest year-on-year rate of expansion since December 2014.
- The surge in industrial production was driven primarily by the 8.0% surge in manufacturing output.
- This is the largest increase in manufacturing output since December 2014.
- China’s dollar-denominated trade surplus in March was $23.92 billion after printing a $9.15 billion deficit previously.
- The surplus was due to exports surging by a whopping 50.4% month-on-month, which easily offset the 21.2% increase in imports.
- Year-on-year, exports increase by 16.4% after falling by 1.3% back in February.
Imports, meanwhile, printed a 20.3% year-on-year increase.
- According to NBS, “the export of mechanical and electronic products increased by 15.1 percent, accounting for 58.1 percent of the total value of exports.”
Putting it all together
China’s GDP expanded at a slower quarter-on-quarter pace in Q1. Year-on-year, however, China is on track to meet the PBoC’s target annual growth of around 6.5%.
There were also signs that China is shifting from an export-driven economy to one that’s driven more by domestic demand and a cyber-economy, as envisioned in China’s so-called “13th 5-year plan” for 2016-2020.
This can be seen in the increase in retail sales and the service sector being the main driver for growth in Q1. Although it’s also worth mentioning that Caixin/Markit and the NBS are conflicting since Caixin/Markit say that new orders and activity in both the manufacturing and service sectors were easing while the officials PMI numbers from NBS say they’re improving. Caixin/Markit’s PMI readings are still above the 50.0 stagnation level, though, so both the manufacturing and service sector are still growing, albeit at a slower pace.
As for inflation, China does have a problem with headline inflation, thanks to the persistent and large slumps in food prices, particularly fresh vegetables. Getting to within the PBoC’s 3% inflation target seems rather unlikely presently. But on a more upbeat note, food prices are stripped from the core reading, so underlying inflation recovered after weakening previously.