China's Economic Activity Cools More Than Expected

Summary

Economic indicators in China are signaling a worsening situation, with key metrics such as industrial production, retail sales, and urban investment all missing forecasts. This has led major financial institutions like Goldman Sachs, Morgan Stanley, and Citi to downgrade their growth forecasts for China's economy, aligning with a consensus that the government's full-year growth target of around 5% is likely unattainable. The longest streak of decelerating factory output since September 2021 and weak consumer spending are particularly concerning. Economists are calling for more aggressive stimulus measures, such as rate cuts and increased spending, to bolster confidence amid these structural weaknesses, especially in the property sector.

Takeaways

• 📉 Economic indicators in China are showing a worsening situation with major metrics missing forecasts.
• 🎯 The Chinese government's full-year growth target of around 5% is now at risk due to the economic data.
• 🏦 Goldman Sachs, Morgan Stanley, and Citi have all downgraded their forecasts for China's economy to around 4.6-4.7%.
• 📊 Industrial production growth has slowed to 4.5%, marking the weakest growth since July of the previous year.
• 🛒 Retail sales are experiencing single-digit growth, with the current rate at 2.1%, which is below expectations.
• 🏢 Fixed asset urban investment growth is at 3.4%, which also missed estimates, indicating a slowdown in investment.
• 💼 There is a growing consensus among economists that the Chinese economy will not meet the government's growth target.
• 💰 There are calls for more easing measures to stimulate the economy, but the extent and effectiveness of these measures are uncertain.
• 🏛️ Authorities are under pressure to shore up confidence in the economy, with some economists suggesting the need for significant stimulus packages.
• ⏳ Time is running out for authorities to implement measures that could boost economic growth to meet the targeted figures.

Q & A

What is the current economic situation in China according to recent data?

Recent economic data indicates that the economic situation in China might be worsening, with most major metrics missing forecasts.

What is the government's full-year growth target for China, and is it at risk?

The government's full-year growth target is about 5%, which is currently in jeopardy due to the recent economic data.

Which major financial institutions have revised their forecasts for China's economy?

Goldman Sachs, Morgan Stanley, and Citi have all revised their forecasts for China's economy, with Citi downgrading to 4.2 or 4.7%, Morgan Stanley to 4.6%, and Goldman Sachs to 4.7%.

What does the term 'bazooka' refer to in the context of China's economic stimulus?

In the context of China's economic stimulus, 'bazooka' refers to a large-scale stimulus package that could significantly boost the economy.

What are the current growth rates in industrial production and retail sales, and how do they compare to expectations?

Industrial production is growing at 4.5%, which is the weakest since July of the previous year and misses expectations. Retail sales growth is at 2.1%, also missing estimates and showing a trend of single-digit growth for several consecutive months.

What is the current streak of decelerating growth in factory output, and when was the last time it occurred?

The current streak of decelerating growth in factory output is four consecutive months, marking the longest streak since September 2021.

What is the growth rate in fixed asset urban investment, and did it meet estimates?

The growth rate in fixed asset urban investment is 3.4%, which also missed estimates.

What measures have been taken so far by the authorities to stimulate the economy, and have they been effective?

The authorities have implemented a string of rate cuts and mortgage easing, but these measures have not been as effective as a 'bazooka' or large-scale stimulus package.

What are some of the structural weaknesses in China's economy that are contributing to the current situation?

Structural weaknesses in China's economy include issues in the property sector, which is a main drag on growth.

What further actions are economists expecting from the authorities to shore up confidence in the economy?

Economists expect to see further rate cuts and possibly triple R cuts, as well as additional measures at the provincial level to boost spending.

What is the urgency for more stimulus according to the economic data and expert opinions?

The urgency for more stimulus is high, as the economic data shows a worsening situation and experts are discussing the need for significant measures to boost confidence and growth.

Outlines

00:00

📉 Economic Slowdown in China

Economic indicators in China are showing signs of a worsening situation, with major metrics missing forecasts and posing a risk to the government's full-year growth target of about 5%. Major financial institutions like Goldman Sachs, Morgan Stanley, and Citi have downgraded their forecasts for the Chinese economy. The industrial production growth rate has hit 4.5%, marking the weakest growth since July of the previous year and a four-month streak of decelerating growth. Retail sales are also experiencing single-digit growth, with a 2.1% increase that missed estimates. Urban fixed asset investment growth at 3.4% has similarly undershot expectations. The situation calls for more easing measures, but the effectiveness and extent of such measures are under debate. Economists are urging for more stimulus to counteract the entrenched structural weaknesses, particularly in the property sector, which is a significant drag on the economy.

Keywords

💡Economic Data

Economic data refers to numerical information that represents various economic indicators, such as GDP, inflation, and employment rates. In the context of the video, economic data is showing a worsening situation in China, with major metrics missing forecasts, which is a key indicator of the country's economic health. The script mentions that 'most, if not all, major metrics missing forecasts' highlights the severity of the economic downturn being discussed.

💡Growth Target

A growth target is a predetermined goal set by a government or organization to achieve a specific level of economic growth within a given time frame. The video discusses China's full-year growth target of about 5%, which is now in jeopardy due to the poor economic data. The mention of Goldman Sachs, Morgan Stanley, and Citi downgrading their forecasts to around 4.7% indicates the growing consensus that the target will not be met.

💡Debt Deflation Loop

A debt deflation loop is a vicious cycle where a decrease in the price level leads to an increase in the real value of debt, which in turn can lead to defaults and further decreases in the price level. In the script, Morgan Stanley is quoted as saying that this loop is likely to outweigh potential easing measures, suggesting that the current economic policies may not be sufficient to counteract the negative effects of debt deflation.

💡Easing Measures

Easing measures refer to actions taken by a central bank or government to stimulate economic growth, typically by lowering interest rates or increasing the money supply. The video script mentions that there is a 'growing chorus for more easing,' indicating that many economists believe more aggressive measures are needed to boost the Chinese economy.

💡Industrial Production

Industrial production measures the output of businesses integrated in the industrial sector of an economy, such as manufacturing, mining, and utilities. The script states that industrial production growth is at 4.5%, which equals the weakest growth since July of the previous year, indicating a significant slowdown in this sector.

💡Retail Sales

Retail sales refer to the total revenue generated from the sale of goods and services in retail outlets to the end consumer. The video mentions that retail sales growth is at 2.1%, which missed estimates and is a sign of weak consumer spending, a key driver of economic growth.

💡Fixed Asset Investment

Fixed asset investment refers to the funds invested by businesses and governments in long-term assets, such as buildings, machinery, and infrastructure. The script notes that urban investment in fixed assets is at 3.4%, which also missed estimates, suggesting a slowdown in investment activities that are crucial for economic growth.

💡Rate Cuts

A rate cut is a reduction in interest rates by a central bank, intended to stimulate borrowing and spending by making loans cheaper. The video script mentions that China has had a 'string of rate cuts,' indicating that the central bank has been trying to stimulate the economy through monetary policy.

💡Mortgage Easing

Mortgage easing refers to policies that make it easier for people to obtain mortgages, typically by lowering interest rates or relaxing lending standards. The video script includes mortgage easing as one of the measures taken by the Chinese government to stimulate the economy.

💡Structural Weakness

Structural weakness refers to underlying, long-term issues within an economy that hinder growth, such as over-reliance on certain sectors or outdated infrastructure. The script mentions 'entrenched structural weakness' in the Chinese economy, particularly pointing to the property sector as a 'main drag' on growth.

💡Fiscal Coffers

Fiscal coffers refer to the funds available to a government to finance its spending. The video discusses the dry fiscal coffers of Chinese provinces, indicating that they have limited funds available for spending, which could hinder their ability to stimulate local economies.

Highlights

Economic data suggests a worsening economic situation in China, with major metrics missing forecasts.

The government's full-year growth target of about 5% is now in jeopardy.

Goldman Sachs and Morgan Stanley have slashed their forecasts for the Chinese economy.

Citi has also downgraded its forecast to 4.2 or 4.7%.

Morgan Stanley's forecast is now at 4.6%, and Goldman Sachs at 4.7%.

Economists believe the Chinese economy will not meet the government's growth target for the full year.

Morgan Stanley suggests a worsening debt deflation loop could outweigh potential easing measures.

There is a growing call for more easing measures, but the extent is uncertain.

Industrial production growth is at 4.5%, the weakest since July of the previous year.

Factory output has been decelerating for four consecutive months.

Retail sales growth is at 2.1%, missing estimates and marking several months of single-digit growth.

Urban investment in fixed assets grew by 3.4%, also missing estimates.

Authorities are under pressure to shore up confidence amid weakening economic indicators.

Economists are discussing the urgency for more stimulus measures.

ANZ Bank's chief China economist suggests a stimulus package, or 'bazooka,' is needed to hit the official target.

There has been no indication of a significant stimulus package to boost confidence.

Structural weaknesses, particularly in the property sector, are a significant drag on the economy.

Economists expect further rate cuts and possibly triple R cuts.

Provincial-level special budgets could be used to boost spending as fiscal coffers are dry.

Time is running out for authorities to implement measures to improve economic indicators.

Transcripts

[CC may contain inaccuracies] The flurry of economic data showing that the situation, economic situation in

China might be worsening most, if not all, major metrics missing forecasts,

putting the government's full year growth target of about 5% in jeopardy.

Here's a look at some of the numbers as well.

And we just talked about it. Goldman Sachs and Morgan Stanley have

both come out on the back of those numbers and slashed their own forecasts

in the Chinese economy. Stephen Engle chief North Asia

correspondent is here with us to talk us through how bad these numbers are in

context. Steve, don't forget Citi, they also

downgraded this morning as well down to 4.2 or 4.7%.

So Morgan Stanley to 4.6%. Also Goldman Sachs to 4.7%.

So that kind of is in line with the growing consensus that the Chinese

economy will not meet the government's growth target for this full year as

we're running out of time of around 5%, I guess you could say 4.7 is around 5%.

But it's to the downside, obviously. And again, you know, these economists

are saying one four. Morgan Stanley essentially saying

there's this worsening debt deflation loop likely to outweigh potential easing

measures. There is a growing chorus for more

easing, but how much is the big question as well?

So the numbers are industrial production, 4.5%.

It equals the weakest growth in factory output since July of last year.

It's also four consecutive months now of a decelerating growth in factory output

had been a bit of a strength because of on the back of exports and also

industrial excess industrial capacity while property and consumption has been

weak. Factory output has been okay.

But look at that. That is actually the longest streak of

decelerating growth in factory output since September of 2021.

So that really drives home that point. Retail sales, I talked about the

consumer. They're holding on to their renminbi.

Obviously, this is the, what, fifth or sixth consecutive month of single digit

growth. 2.1% missed estimates.

Also, fixed asset, urban investment, 3.4%.

That also missed estimates. Again, so your move now authorities are

to see what they can do to shore up confidence in what has been weakening

confidence. I'm guessing there's a lot of economists

out there that are sent or at least talking about the urgency for more

stimulus. Now.

What what are you hearing? Yeah, absolutely.

I mean, they've they've had a string of rate cuts.

They've had mortgage easing, but it hasn't been the big bazooka.

That's something that Raymond Yong, a chief China economist at ANZ Bank, says

the August data basically rules out the chance of basically hitting that

official target unless the top leadership is willing to launch a

bazooka, his words, a stimulus package. We've had no indication that we're

getting any kind of bazooka landmine or any kind of howitzer, any kind of

military weapon to boost this confidence because there is entrenched structural

weakness, obviously, and property is a main drag.

So what can they do? Well, most economists expect to be to

see further rate cuts, perhaps triple R cuts as well.

Last year, remember, they had an ad hoc kind of special budget to kind of boost

some spending. That's something they could do at the

provincial level as well to give because the provinces right now are not spending

their fiscal coffers are kind of dry. So there's there's there are things to

do, but we're running out of time, essentially.