China: Worsening demand in July calls for more easing measures – Nomura

China’s fixed asset investment (FAI) growth and retail sales growth slowed further in July to 5.5% y-o-y ytd (Consensus: 6.0%; Nomura: 5.9%) and 8.8% y-o-y (Consensus: 9.1%; Nomura: 8.8%), respectively, from 6.0% and 9.0% in June, notes the research team at Nomura.

Key Quotes

“Industrial production (IP) growth was unchanged at 6.0% y-o-y (Consensus: 6.3%; Nomura: 6.0%). Seemingly stable IP growth was partly driven by a low base and partly by elevated export growth due perhaps to front-loading in fear of a worsening trade war.”

“Markets were too optimistic when forecasting IP, FAI and retail sales growth for July (at 6.3%, 6.0% and 9.1% respectively), while our forecasts (6.0%, 5.9% and 8.8%) were closer.”

“Today’s data help support two of our core views: 1) that the economy will get worse before it gets better, requiring several months to turn around; and 2) our expectation that Beijing will step up credit easing and fiscal measures to deliver a recovery and prevent financial woes such as a rise of bond defaults.”