WE expect the upcoming March economic data to show the start of a sequential rebound in real economic activity, thanks to the recent intensification of fiscal and credit policy support and improving property sector activities. But the first-quarter gross domestic product growth likely eased to around 6.6 percent year on year.

High frequency data points to still strong property sales in March following January and February’s robust start; overall sales likely grew 5 to 10 percent last month. Coupled with improved property developer confidence, new starts likely continued to expand. On balance, growth of floor space under construction probably stayed solid, pushing property investment growth higher to support overall fixed-asset investment growth.

Headline Consumer Price Index, the main gauge of inflation, has rebounded more than expected the year to date due mostly to food, especially pork and vegetables prices, on the back of supply shortages, cold weather and seasonally higher demand. In contrast, non-food CPI inflation has stayed tame.

Though the government will likely retain a pro-growth policy easing stance throughout 2016, we think near-term easing momentum has likely peaked, given the upcoming stabilization of real economic activity, ongoing rebound in property sales and prices, and the recent jump in headline CPI.

As such, we no longer expect a benchmark interest rate cut this year. Overall credit growth should remain strong, rising to 16.5 percent for the full year, but we do not expect its momentum to make further significant gains.

Thanks to intensified fiscal and credit policy support and improving property sector activities, we think a rebound in economic activity has begun in March. The latest official manufacturing Purchasing Managers’ Index bounced back notably from February’s 49 to an eight-month high of 50.2, led by new orders and new export orders.

Industrial production has accelerated. Power generation likely strengthened in March and steel production improved as well, as reflected by the recovery in steel mill furnaces’ operating rate and visibly slower pace of contraction in the first 20 days of March. Together with last year’s favorable base effect, we estimate that industrial production growth likely rebounded from January and February’s 5.4 percent to 6.2 percent in March, taking the first-quarter average print to 5.7 percent.

Property sales, new starts and investment have continued improving. High frequency data saw property sales in the 30 major cities accelerating further last month from January and February’s strong start to the year, suggesting that overall property sales growth may have held up at 5 to 10 percent in March, notwithstanding last year’s high base. Thanks to solid sales momentum and improved developers’ confidence, new starts have likely continued to grow. On balance, floor space under construction probably stayed robust, pushing property investment growth higher in March.

Emerging recoveries

Fixed asset investment has accelerated further. Improving property sector activity and robust infrastructure investment likely supported stronger overall FAI growth in March. Underpinned by strong credit expansion in earlier months, reported disbursement of special construction funds in the first quarter to local public projects, and a faster pace of project implementation, infrastructure investment likely accelerated again.

Despite recent signs of re-stocking activities, manufacturing investment growth likely held steady, weighed down by still persistent deflationary pressures and over-capacity issues. As such, we think overall FAI growth likely accelerated from 10.2 percent previously to 10.6 percent in March, and 10.4 percent in the first three months.

CPI inflation has risen again while PPI deflation eased. Food prices on average moderated in March, but less sharply than their historical average pattern. Although the prices of eggs, aquatic products, and fruits fell from the previous month, those of pork and vegetables continued to rise. On balance, we think March’s headline CPI print likely picked up further to 2.5 percent.

Meanwhile, domestic raw material prices rebounded last month, mirroring the improvement in March’s global commodity prices. Coupled with the visible uptick in March’s official manufacturing PMI input price index, all signs suggest that headline PPI contraction may have narrowed further to 4.7 percent.

The effect of intensified policy support has started to show. The noticeable step up in macroeconomic policy easing since late 2015 — across fiscal, monetary, credit, property and pro-growth structural reforms — has helped to stabilize growth, underpinning the emerging rebound in investment and industrial activities. Not only has the continued improvement in property sales and sentiment finally started to trickle through to volume property starts and construction, but FAI is back on an uptrend led by infrastructure and property investment — supported by the recent credit pickup, more concerted local government efforts to speed up property destocking in lower tier cities, and ongoing acceleration of public project approvals among others.

We think high pork prices will likely persist into the second half of 2016. In addition, housing rental and gasoline prices may face some upside risk on rising property prices and recovering global oil prices, although the resultant impact on headline inflation should be limited due to their limited CPI weights and pass-through on domestic oil prices.

In contrast to surprising strength of this year’s food price inflation surge, core inflation that excluded energy and food, will likely stay largely calm in 2016, as China’s over-capacity overhang remains an issue in the short term given the slow pace of scheduled excess capacity retirement.

Looking forward, we think that food inflationary pressures from pork prices may persist for longer into the second half of 2016. Thus, we revise up our 2016 CPI forecast from 1.3 percent previously to 1.9 percent, and see it peaking in the second quarter before moderating in the later half of this year.

Policy may stay supportive, but there will likely be no more rate cuts. Though we still expect the government to retain a pro-growth policy easing stance throughout this year, we also think that its momentum may have peaked in the near term on the upcoming stabilization of real economic activity, ongoing rebound in property sales and prices, and the recent jump in headline CPI.