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July economic data may improve

By Wang Yanlin | August 6, 2015, Thursday | Online Edition

CHINA'S economic data for July may offer little surprise but activity indicators including retail sales, industrial production and investment may present certain level of improvement that could bolster confidence, analysts said before the release of the key data starting this week.

"The data may stay tepid again in July," said Tang Jianwei, an economist at Bank of Communications. "Although there will be no sharp changes, some indicators may head towards the better side."

Retail sales, a broad measurement of domestic demand, are expected to grow 10.8 percent from a year earlier in July, picking up from the pace of 10.6 percent in June.

Albeit the demand for manufactured goods remained subdued, industrial production is likely to rise 7 percent in July, continuing an improvement since March and up from the increase of 6.8 percent in June.

Fixed-asset investment is forecast to grow 11.6 percent in the first seven months, faster than the pace of 11.4 percent in the first half of the year thanks to more government spending in infrastructure construction.

The Consumer Price Index, the main gauge of inflation, may grow at a faster pace for the second month in a row because of higher pork prices.

"China's wholesale pork prices have surged abruptly by more than 20 percent in recent months -- the fastest pace in the past three years," said Zhou Hao, an economist at Australia & New Zealand Banking Group Ltd. "As it has a large weight in the CPI, the surge will push the nation's overall CPI inflation higher."

The CPI is expected to add 1.6 percent in July, the strongest so far this year and compared with 1.4 percent in June and 1.2 percent in May.

"But even under an extreme scenario, the rising pork prices would lift the CPI growth to 2.1 percent at the most -- still much lower than the target level of 3 percent set by the government," Zhou said.

Zhou continued to say that the overall inflation growth momentum has not picked up, because the Producer Price Index, the factory-gate measurement of inflation and a harbinger of CPI, may drop further in July and enable the central bank to maintain accommodative monetary policies.

"The supply-demand imbalance will only be short-lived... the downward price pressure still exists due to the long-held contractions in PPI," Zhou said. "We expect the government may implement more easing policies to support the economic growth."

China's economic performance surprised the market on the upside by rendering a 7-percent increase in the second quarter, versus the previous market expectation of a 6.8-percent rise that was below the full-year target of 7 percent.

But a cooling manufacturing sector made the outlook was not that rosy for the second quarter.

The official Purchasing Managers Index, a comprehensive gauge of the operating conditions in the industrial sector, scaled back to 50 in July from 50.2 in June. It indicated the manufacturing activities were on the brink of contraction.

“The decline of the official PMI suggested that the manufacturing sector remained weak despite of the better-than-expected second-quarter GDP,” Zhou said.

A recent report by the Shanghai University of Finance and Economics said China’s economic growth may moderate in the following months and conclude the year with a rate of 6.8 percent.

"We are not optimistic that China can fulfill the target of a 7-percent growth for the whole year, considering the risks of growing deflationary pressures, local government debt, capital market rout, corrections in the housing sector, failure to get international deals paid, volatility in exchange rate and flee of foreign capital," according to the report.

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