Consumer Not Immune As Downturn Intensifies
BMI View: The Chinese economy is likely to enter recession over the coming months if it is not already there. The profit squeeze across the entire economy is intensifying as borrowing costs rise, and consumer-focussed industries will not be spared. High household savings rates by no means suggest that consumer demand will remain unscathed as a negative feedback loop of weakening growth and declining asset prices ensues.
If we look at a broad range of indicators within China it is abundantly clear that China's economy is entering recession if it is not already there. Industrial profits continue to decline as margins are being squeezed; rail freight transport volumes are falling; imports and exports are contracting in nominal terms; oil import values are falling; the manufacturing PMI is below 50 and has been for the past two months (using an average of the official and the HSBC indices).
When we look at other indicators around the region, such as Taiwanese manufacturing PMI, the collapse in industrial metals prices, and the contraction in Hong Kong container throughput, it certainly appears as though the much-talked about hard landing is here
|Oil Imports And Rail Freight Volumes In Contraction|
|China - Oil Import Volumes And Rail Freight Volumes, % chg y-o-y (6mma)|