China: Growth momentum softens again – Standard Chartered

Standard Chartered economists Hunter Chan and Shuang Ding highlight that China's growth momentum has softened again, based on July data. The official PMIs for manufacturing, services, and construction all fell below 50 and reached multi-year lows. Trade and Industrial Production showed resilience, though at easing levels. Consumer Price Index (CPI) remained soft, below 1% year-on-year, while Producer Price Index (PPI) stayed high.

Retail sales likely benefited from base effects, while fixed-asset investment continued to contract. The semiconductor sector outperformed, supporting China's trade and production activity. Lower oil prices in June affected export and import prices in July, with a one-month lag, but volume growth may have remained steady. Industrial production growth slightly decreased from a seasonal surge in June but stayed solid.

CPI inflation eased to 0.5% year-on-year in July, the first reading below 1% in six months, due to a month-over-month decline in food and fuel prices. PPI likely dropped month-over-month due to falling petrol-related product prices, but overall headline inflation remained at 4.1% year-on-year. Base effects likely boosted retail sales growth and prevented a worsening of the contraction in year-to-date fixed-asset investment.

Adverse weather may have disrupted construction activity, impacting infrastructure investment, and real-estate investment might have remained a key drag. Overall loan demand remained weak, with corporate and government bond financing continuing to support broad credit growth. China's official manufacturing PMI fell to 49.2 in July, entering contraction territory again since March.

New orders PMI dropped further below 49, while production and new export orders PMI remained relatively stable. Services and construction PMIs both hit multi-year lows, indicating softer domestic demand.