China's industrial production growth is expected to recover modestly to 5.8% yoy in April from 5.6% yoy in March, the lowest level since the financial crisis, says Societe Generale. The April manufacturing PMI reports suggested overall demand remained soft. That said, it is believed at least part of the previous weakness may be attributed to the unusually late Chinese New Year and rising difficulty to recruit back workers after the holiday season.
Moreover, cement production, after being largely suspended in Northern China as part of the upgraded anti-pollution campaign, resumed in late-March or early-April. Fixed asset investment (FAI) is expected to have accelerated slightly in April, partly due to a positive base effect. Infrastructure investment should continue to give a leg-up to overall growth while mining, manufacturing and property investment probably remained weak.
However, the tick-up in the overall yoy growth rate will not be enough to drive up year-to-date growth (i.e. the headline) and it is expected to remain unchanged at 13.5% yoy in April. Nominal retail sales are expected to have strengthened in April, with a stable inflation rate and rising sales volume.
Societe Generale notes that the negative impact linked to the anti-corruption campaign appears to have eased as catering services growth bottomed out in Q1. Thanks to the buoyant equity market, the wealth effect should provide some support for household consumption. However, slowing automobile sales might remain a drag on retail sales growth and cap the upside.
