The recovery in China’s industrial sector seems to be moderating, but domestic consumption continues to rebound. On current trends, there could be an upside risk to our growth forecast for China.
After a strong Q2 recovery, the Chinese industrial sector growth seems to be moderating. The official manufacturing purchasing manager index (PMI) came in at 51.0 in August. As it appears, the initial stimulus spending on infrastructure is waning; the same can be observed for import data.
This comes in contrast with exports; they continue to expand. They were up 7.2% in July and 0.5% in June; hence year-to-year (y-o-y) they are positive, up by 9.5%. As China continues to be the backbone for the global manufacturing industry, until further notice, these ratios are to improve further.
On the consumption side, passenger car sales have accelerated, which should translate into positive retails sales for Q3/2020. Online sales of services, including items such as air tickets, travel packages, and gaming, returned to positive growth in July for the first time since December 2019.
On a broader note: services play more and more of an important role in each economy. In China, about 54% of the global GDP is related to services. If the recovery of services maintains its current pace, then the global GDP growth for China should exceed 2% for 2020.