China's growth: Behind the numbers

China's growth: Behind the numbers

China’s growth figures were unexciting, but the trade picture may be improving; U.S. consumers spent well in November; Mario Draghi stuck to the ECB’s plan, but didn’t sound cheerful about it.

“This is a good signal that China and the United States are on track to solve the trade war”
Wang Cun, director of import committee of the China Automobile Dealers Association

China’s growth: Behind the numbers

Observers probing for weakness in China’s most recent government figures found relatively little to feed their worries. November retail sales grew 8.1% year-on-year; industrial production rose 5.4% year-on-year; fixed assets grew 5.9%, while property investment rose 9.7% year-on-year, the same blistering pace as in October. It’s true that retail sales showed the slowest growth in 15 years and factory output growth was at a 3-year low, but the figures still reflect a Chinese economy on a general path of continued growth.

All this is perhaps surprising given ongoing trade disputes with the U.S. – which are themselves showing signs of tentative, if symbolic, easing since the December meeting between U.S. and China Presidents Xi and Trump. On Thursday, December 13, China placed an order for 1.1 million metric tons of U.S. soybeans, the first purchase since July, when China started to buy soybeans from Brazil instead. Shipping terminals in the Pacific Northwest began accepting soybeans for the first time in months. Also on Thursday, China officially announced its widely-expected temporary suspension of the punitive tariffs it had imposed on U.S.-made cars and auto parts.

U.S. Consumers: Still shopping

Preliminary headline figures show November retail sales growing at a leisurely 0.2% since October.  But when adjusted for declining energy and auto prices, the pace was a more robust 0.5%.  Even better, the so-called “control group” figure which is used to compute U.S. GDP rose 0.9%, well above the expected 0.4% rate and the fastest pace since last year’s November figures. The savings at the fuel pump appeared to be spent on big-ticket items such as furniture and electronics. Some observers concluded that retail sales growth in the face of the relatively low 0.2% month-on-month core consumer inflation figure indicate continued rapid economic growth; the Fed’s economic outlook for 2019, due to be released on December 19, will be scrutinized closely to see if the FOMC shares that opinion.

ECB: Sticking to the plan

European Central Bank (ECB) President Mario Draghi attempted to square the circle during the press conference following the ECB’s monthly policy meeting, lowering the Bank’s economic forecast while adhering to the widely-publicized plan to end the bond-buying portion of its historic €2.6 trillion ($3 trillion) four-year economic stimulus program. The full-year forecast for 2018 was lowered by 0.1 percentage point to 1.9%, as was the forecast for 2019, which now stands at 1.7%. The tone of Mr. Draghi’s comments was dovish to the point of pessimism, describing the state of the economy as “a climate of great uncertainty”. Which also explains his taking great pains to assure listeners that the ECB would continue to hold its €6.2 trillion inventory of bonds for “an extended period of time” after its first interest rate hike, currently anticipated, with ECB guidance, to take place in late 2019.


All data Source: Bloomberg, December 14, 2018, unless otherwise noted.


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