China’s economic growth momentum begins to fade

China’s growth momentum is changing. Following a solid recovery in March, the latest data flow implies that the growth momentum of the Chinese economy is beginning to wane, said ANZ in a research note. Last month, China’s fixed asset investment decelerated considerably. The headline figure rose 9.6 percent year-on-year in the January to May period, as compared with the growth of 10.5 percent in the January to April period.

Private fixed asset investment also decelerated to just 3.9 percent in the January to May period, as compared with 5.2 percent recorded previously. Meanwhile, China’s industrial production continued to stabilize in May. Last month, value added of industry rose 6 percent y/y, implying that manufacturing activities have steadied. According to ANZ, secondary industries in China are likely to expand 0.2 percentage points above the first quarter’s 5.8 percent year on year.

The service sector, which accounts for over 50 percent of the GDP, requires outperforming for the overall GDP to attain a growth rate of 6.5 percent. The financial industry had predominantly driven the economic growth in the second quarter of 2015. But the real estate industry’s upturn had mainly countered the weakening of the financial industry in the first quarter of 2016. If China’s fixed asset investment falls more in June, the 6.5 percent threshold for GDP will be at risk in the second quarter, noted ANZ.

Meanwhile, the nation’s exports are not expected to rebound in the near term given a sluggish global supply chain.  May’s exports data had shown that the external demand continues to be weak. Headline export in terms of CNY rose 1.2 percent year-on-year in May, as compared to a rise of 4.1 percent recorded in April. In real terms, May’s exports have increased more. On the other hand, imports expanded 5.1 percent year-on-year in CNY terms.

On inflation front, the heavy rainfall in recent weeks represent a downside risk to economic growth and an upside risk to inflation. Possible flood events might put upward pressure on vegetable prices that might alter the baseline projection of 2 percent year-on-year in June, added ANZ.