China: November data suggest industrial activity is bottoming out – ABN AMRO

Arjen van Dijkhuizen, senior economist at ABN AMRO, points out that China’s monthly activity data for November came in clearly better than the remarkably weak October numbers, as well as outperforming consensus expectations.

Key Quotes

“Industrial production growth accelerated to a five month high of 6.2% yoy (October: 4.7%, consensus: 5.0%). Retail sales growth rose to 8.0% yoy (October: 7.2%, consensus: 7.6%). Fixed asset investment was unchanged and in line with expectations at 5.2% yoy ytd, remaining at historic lows.”

“Although monthly data can be volatile, reflecting the impact of for instance seasonal distortions or certain tax policies (and the fading thereof), other data for November (PMIs, imports, lending data) published earlier this month also pointed at improving momentum. Bloomberg’s monthly GDP tracker rose to a five-month high of 6.7% yoy in November, up from 5.9% in October, and an average of 6.1% in Q3.”

“The bottoming out in economic activity is partly shaped by a rebound in car production, which has been a key drag on growth since mid 2018). Moreover, the turnaround is supported by Beijing’s piecemeal monetary and fiscal easing (mini interest rate cuts, RRR cuts, increased space for local governments to fund infrastructure projects), improved prospects of a Phase One US-China trade deal, a stabilisation in the global IT cycle, and a possible end to destocking.”

“The recent data are in line with our expectation that China’s industry will bottom out, helping the economy to stabilise in 2020, after headwinds from previous financial deleveraging and the US-China conflict caused a slowdown in official GDP growth since mid 2018.”