citi_China Macro View_Economy Turning the Corner_20120719

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1、CitiResearchEconomics19July2012│14pagesAsiaPacificChinaMacroViewEconomyTurningtheCornerWemaintainourcallofamildgrowthreboundin2H–Whiletheeconomyslowedfurtherin2Q,weseeearlysignsofademand-drivengrowthupturn.FAIandShuangDingretailsalesgrowthacceleratedinrealterms

2、forthesecondconsecutivemonthin+852-2501-2769Jun,anindicationthatpolicyeasingsincethebeginningoftheyearhasstartedtoshuang.ding@citi.comripplethroughtherealeconomy.Thedemandgrowthmomentum,ifsustainedbyMinggaoShenaccommodativemonetarypolicyandexpansionaryfiscalpoli

3、cy,isexpectedtobe+852-2501-2485followedbyaproductioncatch-up.Barringadeeprecessionintheeuroarea,minggao.shen@citi.comgrowthislikelytospeedupgentlyin2Hof2012andearly2013.SerenaWangserena.wang@citi.comTheeconomyslowedfurther,andlabormarketbecamelesstight–GDPgrowt

4、hdeceleratedfrom8.1%YoYin1Qto7.6%YoYin2Q.Investmentwasthemaindrag,whileconsumptionplayedastabilizingrole.Industrialproductiongrowthremainedsluggishataround9.5%YoYin2Q,butagricultureandserviceindustries—whicharelessenergy-intensive—helpedmitigatethegrowthdownturn

5、.Theslowingeconomyappearstohavebeenfeltinthelabormarket,althoughemploymentindicatorswerestillmuchbetterthaninlate2008andearly2009.DataforJunrevealearlysignsofademand-drivenrebound–Despiteweakeningmanufacturingactivity,FAIandretailsalesacceleratedinrealtermsinbo

6、thMayandJun.Inparticular,infrastructureinvestmentturnedfromcontractionin1Qtogrowthin1H,althoughpropertyinvestmentgrowthcontinuedtofall.Destockingstillhassomewaytogobut,ifthedemandgrowthissustained,productioncatch-upwouldfollowbasedonrecentexperience.Weexpectmea

7、suredandtargetedpolicysupporttocontinue–Recentstatementsbythegovernmentdonotimplyurgencytointroducealarge-scalestimulus.Instead,withinflationexpectedtoremainsubdued,wethinkthegovernmentwillfullyutilizethepolicyspacewithinthepre-setpolicymixtoconsolidatethegrowth

8、momentum,withspecialemphasisoninfrastructureinvestmentinrailway,highway,irrigationandenergysavingprojects.TwomoreRRRcutsandonemoreratecutarelikely,buttheriskofahomepr