China's Q2 growth softens – NAB

Gerard Burg, the senior economist at National Australia Bank (NAB), notes that China’s economy grew by 6.2% yoy in Q2 2019, in line with their expectations and down from +6.4% yoy in both Q1 2019 and Q4 2018.

• “This rate of growth is softer than the trough recorded during the GFC, meaning that growth in Q2 was the slowest since 1990. Policymakers continue to send mixed messages regarding economic stimulus – however, we believe that they are providing sufficient monetary and fiscal support to stabilize short term economic growth around these levels (although trade remains an uncertainty). Our growth forecasts remain unchanged, at 6.25% this year, 6.0% in 2020 and 5.8% in 2021.
• The provision of monetary support to China’s economy has been clearly evident in credit growth in the first half of 2019, and suggests that Chinese authorities have been more concerned this year with short term growth than medium-term debt risks. New credit issuance increased by over 31% yoy in this period, to total RMB 13.2 trillion.
• Rumours in July suggest that the PBoC is set to cut the benchmark one-year lending rate. This move (should it happen) would be largely symbolic – the rate hasn’t changed since October 2015, and doesn’t appear to be particularly relevant since the switch in monetary policy from a quantity to a price based approach (which occurred in November 2015). In contrast, short term interbank lending rates are more important and these rates eased in late-June and early July.”