A 17-year low for industrial production was the lowlight from unexpectedly weak data from China yesterday in the final release of July economic figures.
The weakness offset the renewed optimism from Donald Trump’s decision to throw in the towel for the moment and not impose tariff hikes on all Chinese imports from September 1.
China data on industrial production, retail sales and investment were all weaker than expected and help explain the reappearance of deflation in producer prices last month.
While services, such as retailing, health, finance account for a majority of the Chinese economy and manufacturing and production (mines, oil, and gas, etc) don’t matter as much as it did a decade ago, the sharp fall to a 17-year low last month was a shock to markets.
The dip in industrial production was a shock in fact and Reuters pointed out the 4.8% rise was lower than the most pessimistic forecast in its monthly surveys of economists.
Crude steel production slipped for the third month in a row. Car sales were down year on year in July, electricity production rose 0.6% in July but that was down from a 2.8% rate in June and the National Australia Bank pointed out that production of consumer electronics good has slowed sharply in recent months.
“There remains some divergent trends among individual industry sectors. Construction-related sectors – such as crude steel and cement – have continued to grow, with output up by 5.0% and 7.5% YoY respectively,” the NAB reported in a note yesterday afternoon.
“In contrast, auto manufacturing continues to struggle – reflecting the impact of tighter access to non-bank credit on domestic motor vehicle demand – with output down by 11.5% YoY.
“Production of consumer electronics equipment recorded slowing growth – down to 6.1% YoY (from double-digit rates between the start of 2017 through to June 2019). Electricity output rose by just 0.6% YoY (from 2.8% YoY previously).”
The lower steel and car sales figures will add to the downward pressure on iron ore prices that saw the global spot price dip under $US90 a tonne for the first time in months on Tuesday.
The 4.8% rise in China’s industrial production last month was the slowest rate of growth since February 2002. That was down from the 6.3% reading in June and well under forecasts around 5.8% to 6%.
Reuters pointed that “despite more than a year of growth-boosting measures, Wednesday’s data showed China’s domestic demand remains sluggish, with gloomy July factory surveys, stubbornly soft imports and weaker-than-expected bank lending data released in recent days reinforcing views that Beijing needs to roll out more stimulus soon to support the economy.”
Retail sales growth was also weaker than the most pessimistic forecast, after a jump in July that many analysts had predicted would be temporary.
In fact, the 7.6% rise retail sales was disappointing and like industrial production, well under the 8.6% forecast by the market. It was also sharply lower than the surprise rise in June to an annual rate of 9.8%.
Completing the data misses, urban fixed-asset investment grew 5.7% in the six months to July, compared to the same period a year earlier, falling short of the 5.8% level expected. That was a narrow miss on the 5.8% gain from January to June.
Property investment grew 10.6% in the first seven months of the 2019 on-year, slowing from 10.9% in January-June.