China: M2 and credit growth disappoint in May; more policy easing could be needed
June 12, 2019
In May, Chinese banks distributed CNY 1.18 trillion (USD 171 billion) in new yuan loans. The reading was above the CNY 1.02 trillion distributed in April but below market expectations of CNY 1.23 trillion. In the 12 months up to May, new yuan loans totaled CNY 17.0 trillion (12 months up to April: CNY 17.0 trillion).
Meanwhile, annual growth in M2—the broadest measure of money supply in China—stabilized at April’s 8.5% in May. The reading missed the 8.6% rise that market analysts had expected.
Total social financing (TSF)—a broader measure of credit and liquidity in the economy that includes loans, bonds and other non-traditional instruments—rose from CNY 1.36 trillion in April to CNY 1.40trillion in May.
Against this backdrop, Eva Yi, Huili Chang and Hong Liang, analysts at CICC, comment that:
“Both high frequency activity data and TSF data for May points to deteriorating growth momentum […] From a macro perspective, against the backdrop of an “external demand shock”, we may experience a visible slowdown in growth momentum even if domestic financial conditions remain stable. Therefore, we see increased urgency and necessity to loosen domestic financial conditions, in order to help stabilize aggregate demand growth and anchor investment expectations.”