Growth momentum remained weak in August – Standard Chartered

Real activity appears to have eased in August amid weak domestic demand. We maintain our 2024 growth forecast at 4.8%, but see some downside risks. We expect more RRR and policy rate cuts by the end of the year, faster fiscal spending under the current budget, Standard Chartered economists Hunter Chan and Shuang Ding note.

The 5% growth target looks increasingly challenging

“Growth momentum remained weak in July-August after a significant quarter-on-quarter slowdown in Q2. August industrial production (IP), retail sales and growth in fixed asset investment (FII) all came in below expectations on weak domestic demand and poor weather. The unemployment rate rose further to 5.3 percent from 5.2 percent in July, partly due to student graduations. Meanwhile, the 3-year CAGR (with 2021 as base year) for most real activity indicators has improved, balancing the overall negative picture.”

“Specifically, IP growth fell to a five-month low of 4.5% y/y in August, from 5.1% in July. Seasonally adjusted retail sales were almost flat after a brief rebound in July. Services output growth fell to a four-month low of 4.6% y/y. Private investment contracted for a second consecutive month, dragged down by a weak housing sector. Growth in infrastructure investment slowed further. GDP growth remained below 5% y/y in August, according to our estimates.”

“We maintain our growth forecast for 2024 at 4.8% as we expect more political support by the end of the year. We expect the government to focus on accelerating government bond issuance and fiscal spending to fully utilize the fiscal space in the approved budget. We also expect the People’s Bank of China (PBoC) to cut the reserve requirement ratio (RRR) by 25 bps this month and cut the policy rate – i.e. the 7D reverse repo rate – by 10 bps in Q4.”