China growth slows but total crash still impossible: CIMB
Nothing short of a worldwide recession will push the resilient Chinese economy to a full meltdown, says the brokerage firm.
"The latest batch of macro data confirms slower growth, but also that the Chinese economy is not about to crash (better-than-expected trade). Unless a worldwide recession breaks out, policy planners should continue to calibrate their monetary and fiscal policy to support broad-based growth of about 8+% in the intermediate term," said CIMB in a new economic update on China.
Citing new official data, CIMB noted that while China's production has disappointed leading to the brokerage firm cutting its 2012 GDP growth forecast to 8.2% from 8.7%, there is still positive news trickling in from the trade and policy indicators.
Here's more from CIMB:
Weaker-than-normal production data. With May’s PMI for goods and services coming in weaker than expected and new orders contracting for the first time this year, 2Q12 manufacturing could be quieter than even the typical seasonal lull. Data released yesterday shows industrial production (IP) expanding 9.5% yoy in Apr-May, the slowest growth for a non-festive period since 2009 (8.1% in Apr-May 09). On a positive note, IP grew 9.6% yoy in May (consensus: 9.8%) vs. Apr’s 9.3% while FAI was steady, up 20.1% YTD (20.2% in Apr). Domestic spending rose 13.8% yoy, not fantastic but still healthy. Taken together, Apr/May’s macro data points to GDP growth of 7.8-8.1% yoy in 2Q12 (8.1% in 1Q12; 9.5% in 2Q11). With growth slowing down, we cut our 2012 GDP growth forecast to 8.2% from 8.7%.
Not all doom and gloom: trade surprised. We had expected trade to rebound but the 15.3% yoy increase in May’s exports to a record US$181.1bn (4.9% in Apr) took us and the market by nice surprise (respective estimates of 9.4% and 7.1%). Similarly, May’s import growth of 12.7% (0.3% in April) blew past our 7.3% forecast and consensus’s 5.5%. Nonetheless, due to the drag from Europe and the impact on global demand, we shave our 2012 export-growth target to 10% from 13% (8.7% in 5M12, 20.3% in 2011).
2012 inflation to fall below forecast. Inflation is no longer a policy concern with CPI easing to 3.0%, below consensus and our forecast of 3.2%, on slower food and non-food inflation. PPI fell 1.4% yoy. On current trends, the CPI is set to ease to 2.0-2.3% in 2H12 (average 3.3% in 1H12). We cut our 2012 inflation forecast from 3.5% to 2.5-2.8%, well below the official estimate of 4%.
Flexibility for the PBoC to ease further, if needed. China has already unveiled measures to target domestic demand. Monetary loosening began in Dec last year with a 50bp cut in RRR; this was followed by similar-magnitude cuts in Feb and May. Benchmark interest rates for deposits and loans were cut in early June, for the first time since end-2008. With inflation easing towards 2% in 2H12, we are adjusting our policy forecasts. On top of two more RRR cuts, we are expecting 1-2 more 25bp cuts in benchmark rates in 2H12, to take the 1-year lending rate to 5.81-6.06% by end-2012 and the RRR to 19%.
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