Fast recovery in industrial output vs sluggish domestic demand
On April 17, China's National Beruea of Statistics released 1Q economic growth and March real economic indicators.
Due to the Corona 19 impact, the real economic indicators were weaker than expected in February,
and attention was focused on the strength of the recovery of the real indicators in March.
The impact of this announcement was that while the Chinese authorities' ability to supply companies has recovered at a rapid pace, domestic demand has not yet recovered.
China's economy fell 6.8 % on-year in the 1Q. This is a expected result(YoY -6%)
Rather, the Chinese stock market rose slightly because of the Chinese authorities' stimulus measures and the pace of the country's economic recovery in the second quarter.
The real economy(Industrial production, retail sales, and fixed asset investment) all improved in March from the previous month, but the pace of improvement differed by sector.
First of all, industiral output fell 1.1% year-on-year in march, and the decline sharply narrowed(YoY -13.5%) month-on-month. Improvements were much faster than market expectations(YoY -6.2%).
This indicated that production capacity has recovered to normal levels.
Retail Sales fell 15.8% year-on-year in march. The decline was improved from the previous month(YoY -20.5%), but it was significantly weaker than expected(YoY -10%). As expected, retail sales were the slowest in March in the real economy.
Considering the limited improvement in internal and external demand after Corona 19, China's employment environment is likely to deteriorate again. China's unemployment rate hit 5.9% in march.
The unemployment rate in the manufacturing sector fell 0.3%p month-on-month due to the fast resumption of operation, but the level of unemployment reamains above average due to the sluggish service sector.
Fixed asset investment fell 16.1% on-year in March. Significant improvement over the previous month(YoY -24.5%), but below market expectation(YoY -15%). The decline improved on-month, with infrastructure, high-speed, and real estate fixed-asset imvestment, which the Chinese authorities are emphasizing as a stimulus, falling 19.7%, 17.5%, abd 7.7%, respectively, from a year earlier.
Since the Corona outbreak, the economic stimulus effect that the Chniese authorities have emphasized seems to be reflected in the real economy, focusing on industrial production. The employment environment has improved somewhat, especially for manufacturing and construction companies.
In addition, China's consumption(investment, retail sales) is expected to improve gradually.
However, as Corona 19 spreads around the world, major countries such as Japan, Europe, and the United States are still sepreading, and the trade restrictions are expected to continue. Therefore, the Chinese government is expected to continue its stimulus package to expand domestic consumption amid slugghis domestic demand and limited external demand.
The main means of liquidity supply for stimulus would be fiscal policy, and immediately after the 1Q economic growth, special government bonds, fiscal policies and interest rate cuts were emphasized at the Central Political Bureau meeting. The time when this monetary policy comes out of, the meeting is expected to be further eased in the second half of the year when inflationary pressure will ease.
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