China’s economic data should show further signs of weakness

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The Chinese economy likely continued to weaken across the board in October with few signs of a bottom.

A set of key economic data to be released on Monday will be closely scrutinized for signs that the slowdown is severe enough to prompt authorities to step up their economic support. The weakness in the economy comes on both the supply and demand side, such as when the economy was initially hit by the virus in early 2020.

But the causes of the supply shocks have shifted to power shortages, Beijing’s environmental restrictions and the crackdown on financial risk that has hit the real estate market, as domestic demand continues to be affected by the Covid strategy. -zero.

To better gauge China’s economic performance at the start of the last quarter of 2021, here’s a guide on what to watch out for in the data:

Production

Power rationing that began in September likely continued into October, while high cost pressures continued to squeeze company profits, both of which limited output at factories. A higher basis of comparison last year could also lower the reading.

Economists expect industrial production to rise 3% from a year ago, the slowest pace since it contracted in early 2020, according to median estimates from a Bloomberg survey . A prominent sub-index in China’s PMI data that measures output also indicated a further slowdown, falling further into contraction territory in October.

The electricity crisis is easing for now, with China’s largest grid operator saying this week that supply and demand have returned to balance in around 88% of the country. However, some heavy-consuming and heavily polluting industries are still limited in some provinces, and with a cold winter expected and additional coal supplies limited, there could be further shortages.

Investment

According to the survey, investments in property, plant and equipment in the first ten months of the year are expected to have slowed to 6.2% from 7.3% in September. This is mainly because real estate investing has likely continued to suffer from the funding crunch for developers amid the turmoil in the real estate market that started with China Evergrande Group.

Although policymakers have started to fine-tune some real estate policies and state media is fueling speculation about easing restrictions, the industry slowdown could still become the main drag on growth, economists say, as the industry and related industries account for a 25% increase in China’s gross domestic product.

Consumption

Consumption has likely taken another hit from the new outbreaks of Covid-19 and China’s zero-tolerance approach, with restaurants or food service and retail sales in physical stores particularly feeling the pain. Consumer confidence has not reached the levels seen before the pandemic, as can be seen in weak data on national holiday spending.

It’s also likely that some people postponed their October purchases to take advantage of the ‘Singles’ Day’ online shopping festival in November, which could weaken reading last month. Economists expect retail sales growth to slow to 3.8% during the month.

Outlook

In light of mounting downward pressure, several economists have lowered their growth forecasts for the next few quarters, including Lu Ting of Nomura Holdings Inc. He expects the worst for China’s growth in this cycle slowdown will occur in the spring of 2022.

“The worst is yet to come,” Lu wrote in a note Wednesday. “Despite an alleviated energy shortage and fine-tuning of real estate restrictions, we believe economic conditions are likely to deteriorate further, as the pain threshold still appears to be reached for Beijing to take concrete action.”

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