China Economic Outlook
After negative economic data across the board in July, August data hints at an incipient stabilization in activity. In the month, readings for industrial production, retail sales, credit provision, exports and imports were all better than markets were expecting. That said, the economy continues to be held back by a slumping property sector, tepid sentiment among firms and consumers, soft external demand, deteriorating demographics and U.S. trade and tech restrictions. Stimulus has been stepped up in recent weeks: At end-August, the government cut mortgage rates and down payments, and in mid-September the Central Bank cut reserve requirements. Together with previously announced policy easing, these measures should shore up the economy in the months ahead. Further cuts to the Central Bank’s policy rates and targeted support for the property sector are on the cards ahead.
Consumer inflation clocked 0.1% in August, contrasting July’s 0.3% year-on-year drop in prices but slightly below market expectations. Producer prices fell 3.0% on an annual basis in August, a softer decrease than July’s 4.4%. Price pressures should increase from current levels through end-2023 on the recent rise in global energy prices and the depreciation of the yuan.