Monday, February 11, 2013

China data supports improving outlook

China export, import and lending data all started 2013 stronger, while inflation was softer.  But with the different timing of the Lunar New Year holiday this year (January in 2012, February in 2013), cautious interpretation is required.  In general though, the data support the story of a recovery in growth in 2013.  There is clear upside risk emerging to my 8.0% annual average GDP forecast for 2013, but I will leave it where it is until the New Year holiday data washes through.

Exports surged to annual growth of 25% in January, up from 14% in December.  This data can be volatile so we’re not reading too much into this number.  Our 3-month rolling annual percent change current stands at a more modest 13%, which is closer to where we think 2013 exports will end up.  That still seems strong compared to where U.S. and Europe growth is likely to be this year, but the biggest growth in China exports to other Asian economies.

Imports were up an even more robust 29%, reflecting restocking prior to the New Year holiday and the fact that in China, exports have a high import component.  In that regard, strong imports support the validity of the export data.

Lending was also very strong in January with total new lending more than double that of December, although base effects kept the growth rate subdued.  Social financing was also strong reflecting stronger demand for credit in the economy.

Consumer inflation dropped back to 2.0% in January, down from 2.5% in December.  However, the lower inflation rate in January primarily reflects the higher base in January 2012 when prices increased sharply for the New Year holiday.  We expect a spike higher in prices to come through in February, and for inflation to trend higher in 2013 to around 3.0-3.5%.

With higher inflation ahead, the property market recovering and stronger money supply growth it was no surprise the People’s Bank of China last week flagged their intention to contain inflation risks.  To us that means no further monetary easing this year, although we wouldn’t expect to see any tightening in conditions this year either unless growth is significantly ahead of expectations.