China July activity data Report Interpretation

Overview

This is a preview of China’s July industrial production, fixed-asset investment and retail-sales releases. Goldman Sachs expects data to point to a weak start to Q3, with industrial production below consensus and apparent improvements in investment and consumption partly reflecting base effects.

Core views

Goldman Sachs says July data released so far point to a weak start to the third quarter despite stronger easing rhetoric from the July Politburo meeting. Official and unofficial PMIs broadly declined, export and import growth both moderated from June, and the firm’s current activity indicator, which tracks sequential growth momentum, fell to about 5.1% month-on-month annualized in July from 5.6% in June. The report forecasts industrial production growth of 4.6% year-on-year in July, down from 5.3% in June and below the 5.0% Bloomberg consensus. It attributes the moderation to slower export growth, larger-than-expected declines in manufacturing PMIs, and a deeper year-on-year contraction in steel production and demand. Slightly better automobile-output growth provides only a partial offset. After adjusting for base effects, the forecast implies industrial production contracting at a -2.6% month-on-month annualized pace, versus +12.0% in June; the report notes this is consistent with a pattern of softer sequential industrial-production growth at the start of each quarter. For fixed-asset investment, Goldman Sachs expects single-month growth to improve to -6.4% year-on-year from -9.3%, largely because of a low comparison base rather than an improvement in underlying conditions. Weather remains unfavorable, the NBS construction PMI declined, and sector-channel checks indicated softer commodity demand by mid-July. The forecast implies -6.1% month-on-month annualized investment growth, compared with -9.8% in June, and year-to-date fixed-asset investment growth of -5.8% year-on-year, broadly unchanged from June’s -5.7% and slightly better than the -6.2% consensus forecast. Retail-sales growth is forecast to rise to 1.5% year-on-year from 1.0%, matching consensus. The report expects favorable base effects to lift automobile and home-appliance comparisons even as the support from the consumer-goods trade-in program fades. CPCA data showed the year-on-year decline in automobile sales volumes narrowing to -20.9% in July from -23.2% in June, while the report’s sector tracking indicated a narrower contraction in home-appliance sales. NDRC data showed in-store consumption-related payment growth rising to 2.2% year-on-year from 1.4%. The retail forecast implies +2.9% month-on-month annualized growth, slower than June’s +9.3%. Overall, the institution’s July forecasts are below market consensus for industrial production, broadly in line for retail sales, and slightly above consensus for fixed-asset investment. The central message is that year-on-year improvements in investment and consumption should be interpreted alongside base effects and weaker sequential momentum.

Analysis framework

The report combines already released July indicators—PMIs, trade data, sector channel checks, vehicle-sales data and payment data—with year-on-year and month-on-month annualized comparisons. It uses this evidence to forecast the three official activity indicators and compare its estimates with Bloomberg consensus.

Methodology notes

• Other

  Base-effect adjustment and month-on-month annualized growth analysis

  The report separates year-on-year changes caused by comparison bases from underlying sequential momentum, using month-on-month annualized estimates to assess whether activity is strengthening or weakening.

Key data

• Current activity indicator5.1% mom annualizedJuly, down from 5.6% in June.
• Industrial production growth4.6% yoyJuly forecast; down from 5.3% in June and below 5.0% Bloomberg consensus.
• Industrial production sequential growth-2.6% mom annualizedJuly implied rate, versus +12.0% in June after adjusting for base effects.
• Fixed-asset investment growth-6.4% yoyJuly single-month forecast, versus -9.3% in June.
• Fixed-asset investment growth-5.8% yoyJuly year-to-date forecast, versus -5.7% in June and -6.2% Bloomberg consensus.
• Retail-sales growth1.5% yoyJuly forecast, up from 1.0% in June and in line with Bloomberg consensus.
• In-store consumption-related payment growth2.2% yoyJuly NDRC data, up from 1.4% in June.

Impact & implications

The report interprets the expected data as evidence of weak sequential growth at the beginning of Q3. It highlights that better year-on-year investment and retail-sales readings would partly reflect base effects, while industrial production is expected to be the clearest downside surprise versus consensus.