China's muted economic activity growth surprises on the downside

Much of the global economic discourse these days is being dominated by the ongoing US-China trade spat. The dispute was ratcheted up by a salvo of trade tariffs between Beijing and Washington.

Many are concerned about a slowdown in China as result. A poll of economists surveyed by Bloomberg suggests China’s 2019 GDP growth will be lowered by 0.3 percentage point by the rise in US tariffs on $200bn of imports from China. 

Should more tariffs be slapped by US President Donald Trump to cover all Chinese goods; a 0.6 percentage point drop in the 12 months thereafter appears to be the median figure from those polled. 

But even before the latest escalation of the current spat began, data suggests economic activity was already slowing down.

According to China’s National Bureau of Statistics,  the country’s April industrial output came in at 5.4% on an annualised basis down from 8.5% in March, April retail sales growth came in at 7.2% (versus 8.7% in March), and fixed-asset investment at 6.1% (versus 6.3% in March).  

So should people be alarmed? Not overtly, according to Kit Juckes, Head of FX at Société Générale. “China's activity data has surprised on the downside. But looking through the monthly volatility, China is still on track of a stabilisation. Perhaps the recovery is probably not as strong as some are hoping for. 

“The implemented cuts and the coming fee cuts in July, along with infrastructure stimulus, will still be supportive of growth in the second half of the year. 

Juckes also said the US deficit with China will remain a bone of contention whether the current trade dispute is resolved or not. “The under-performance of US exports, meanwhile, will do nothing to quell the view in Washington, that the dollar is overvalued, and one day President Trump is going to get exercised about that.”