(Bloomberg) -- China’s economy likely gained momentum last month, with early indicators pointing to a rebound after the government began rolling out stimulus measures in late September.
Industrial output and retail sales are expected to have grown at a faster pace in October compared to September, according to forecasts by economists in a Bloomberg survey. The government’s support for the housing market probably helped to boost home sales, while a long holiday in early October supported retail and tourism spending. The data are due Friday.
Further signs of improvement would represent the latest evidence of a turnaround after China’s growth slowed to its weakest in 18 months, driven by a property downturn, weak demand and falling prices. But the return of President-elect Donald Trump to the White House early next year might derail the recovery, given he’s threatened tariffs on all Chinese shipments to the US that risk a slump in export earnings.
“The authorities have stepped-up counter cyclical policy easing, with more coordinated efforts to lift sentiment and growth,” Barclays economists led by Jian Chang wrote in a note this week. “Following the policy easing, we see early signs of recovery, but the sustainability remains in doubt.”
The National Bureau of Statistics is set to release October economic data on Friday at 10 a.m. local time. Key indicators are expected to pick up from the previous month.
Here’s what to expect:
- Industrial production is forecast to rise 5.6% in October from a year earlier, the most since May.
- Retail sales may climb 3.8% from last year, the fastest pace this year.
- Fixed-asset investment is likely to pick up to 3.5% in the first 10 months, compared with a 3.4% increase in the January-September period.
- Property investment probably plunged 9.9% in the first 10 months, a slight improvement from the 10.1% drop in the first nine months.
- The surveyed urban jobless rate is expected to be 5.1% in October, unchanged from the previous month.
Industrial output
The industrial sector was already outpacing consumer growth before the stimulus announcements and that trend has continued. In October, both official and private reports showed factory activity exceeding analyst expectations and returning to expansion.
What Bloomberg Economics Says...
“The full impact of the stimulus is still ahead. But turning early gains into a sustainable rebound will depend on effective execution of the measures spanning fiscal, monetary and housing support.”
—Eric Zhu, economist, and Chang Shu, chief Asia economist. For full analysis, click here
Stockpiles of steel fell in late October, while production volumes were the highest in three months, according to data from the China Iron and Steel Association. Meanwhile, car output rose 3.6% in October from a year earlier, according to the China Association of Automobile Manufacturers.
But the domestic market is struggling to absorb all the goods produced, leading to a surge in exports. Last month, steel exports hit their highest since 2015, helping to push the nation’s trade surplus to the third-largest on record.
Retail sales
China’s retail sales are forecast to hit a record high of 4.5 trillion yuan ($623 billion), boosted by a weeklong holiday that saw over three-quarters of a billion domestic trips. However, growth remains sluggish compared to pre-pandemic levels as people are still cautious about spending in the current economic climate.
The slump in the property market has slashed demand for household goods to furnish new homes, keeping consumer spending weak over the past few years despite hopes for a rebound after the pandemic ended.
Increasingly entrenched deflation may also be driving people to postpone purchases, as falling prices encourage them to wait for even better deals. While the central government hasn’t introduced major consumer-focused measures yet, there are some incentives such as shopping rebates and discounts for trading in old electronics and other goods for newer models.
Housing
The collapse in the housing market over the past three years has dragged down economic activity as companies slashed construction, with some projects halted halfway and others never started due to a lack of funds. The crisis also drove prices down, diminishing people’s sense of wealth and causing many to pull back on spending.
It has also slashed demand for new land, cutting into local government revenue which was heavily dependent on selling land to developers. However, the measures announced since late September did provide a boost to demand, with sales up 7.1% in October from a year earlier. That was the first increase this year, according to preliminary data from China Real Estate Information Corp.
Whether the increased property sales have helped slow the drop in prices will a key focus in Friday’s data. House prices have fallen in every month since early 2022, according to NBS data, with those drops getting steeper since mid-2023.
Despite Beijing’s recent and earlier stimulus efforts, property investment has fallen every month since early 2022, and Friday’s data is forecast to show little improvement.
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©2024 Bloomberg L.P.