China Macro Flash: Better Retail Sales Despite Temporary Setback in IP
Industrial production, similar to the pattern in yesterday's trade data release, continues to recover but in a wavering pattern. April's print was lower than consensus but closer to our expectations of a decline in the YoY rate vs. the previous month, as hinted by the slowdown in power production data. Year-to-date data suggest that production improvements continued in April (5.5%yoy) from 1Q's 5.1%yoy.
Contrary to our and market expectations of a temporary setback, retail sales continued to recover in April from the plunge seen in February. Taking into account deflation of CPI, real retail sales grew 16.5%yoy in April, a further increase from the previous month's 16.1% yoy (see Figure 3). Recovery in consumer demand would likely continue to benefit from less depressed consumer sentiments and fiscal stimulus (as government current purchases are counted in retail).
Solid sales in furniture and autos. Strong sales of housing related products continued as furniture sales grew 22.8%yoy, but we see future growth in retail related to new homes would start to fall as home purchases have markedly slowed in May. Auto related sales rose 18.5%yoy in April, further improving from 1Q's 11.1%yoy, as car buyers take advantage of the reduced vehicle purchase tax (for cars of engine sizes 1.6L and below, the tax was reduced from 10% to 5%) since late January.
April data releases confirm our view that recovery will continue under the blessings of government stimulus and robust credit growth. Although industrial and trade activities continue to be weighed down by the still uncertain external demand, we believe the authorities would have the resources to launch further stimulative measures should selected sectors run into extended setbacks.
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