China: Bottoming out industry will help economy to stabilise – ABN AMRO

According to Arjen van Dijkhuizen, senior economist at ABN AMRO, in addition to the end of the tariff tit-for-that, there are indications that Beijing’s shift to a piecemeal fiscal and monetary easing approach is filtering through.

Key Quotes

“With past headwinds fading, there is increasing evidence that the weakness in China’s industry is starting to bottom out (although the picture is still mixed, with many hard data yet weak).”

“Annual growth of car production turned positive again in November, for the first time since June 2018. Caixin’s manufacturing PMI – with a relative strong coverage of the private sector – has been improving since July, probably reflecting that Beijing’s piecemeal easing is targeted at private firms.”

“Since November 2019, the official manufacturing PMI rose back to above the neutral 50 mark again (for the first time since April 2019), likely helped by an improving sentiment on US-China talks. The ‘official’ PMI export subindex has jumped by four full points between June and December 2019. There are also indications that the global IT cycle is bottoming out, which will also be helpful in supporting external demand for Chinese goods.”

“All in all, assuming no further stepping up in US-China tariffs, we expect a bottoming out in industry this year. That will help the Chinese economy stabilise: we expect official GDP growth to slide only marginally to 5.8% in 2020, from 6.0% yoy seen in Q3-2019.”