March data so far showed a surge in the services sector as consumers spend more on travel and restaurants now that Covid waves have eased. Yet, at the same time, inflation weakened in the month, pointing to subdued domestic demand.
On Thursday, official data showed a surprise jump in Chinese exports after five months of declines largely due to stronger demand from Asian markets and as factories returned to normal. That was in contrast to signals from purchasing managers’ surveys last week, which suggested a slowdown in manufacturing in the month.
Credit figures were also strong this week, although economists said that was probably more to do with a surge in liquidity rather than a real pickup in demand for loans from consumers and businesses.
Taken together, the data suggests the recovery path isn’t certain and policymakers will need to stay on guard to meet their economic goals this year, including a growth target of around 5%. Gross domestic product figures next week and a likely meeting of the Communist Party’s Politburo later in April will provide crucial clues on the way forward.
For now, the conflicting data have created diverging expectations on the path for monetary and fiscal stimulus. Some economists, like Nomura Holdings Inc.’s Lu Ting, say recent data suggest growth is losing momentum and gives Beijing reason to take more action. Others, like Societe Generale SA’s Wei Yao and Standard Chartered Plc’s Ding Shuang, argue the economy is rebounding, so more support isn’t needed.
“The economy is in the process of recovery and it would be wrong timing to add stimulus now,” said Ding. “I’d stick to my long-time view that there is no need to ramp up stimulus.”Traders are taking the opposite view, though, piling into government bonds on bets more monetary easing may be on the way. The nation’s 10-year sovereign bond yield tested a six-month low of 2.81% on Wednesday following subdued inflation data.
