Early China Data Shows Slowdown Biting Amid Credit TighteningBloomberg News
Four early indicators show cooling economic growth in May
Previous optimistic sentiment has faded: ZEW economist
The first hints of China’s economic performance this month suggest that a slowdown in growth is taking hold, as policy makers beef up efforts to clamp down on financial risks.
The international-investor optimism that dominated in the earlier part of the year is now souring, as curbs on leverage push up the cost of domestic borrowing. Small and medium-sized companies are also reporting dented confidence, and sentiment among sales managers and in the steel market worsened.
A surprise cut in China’s debt rating by Moody’s Investors Service last week may mark a turning point for the world’s second-largest economy, as momentum weakens following a better-than-expected expansion in the first quarter. Yet the gloom shouldn’t spread too far, with consumers still spending, factory-gate prices gaining and home prices defying predictions of a hard landing.
Here’s what May’s earliest indicators show:
Standard Chartered Plc’s Small and Medium Enterprise Confidence Index headed for a second consecutive month of decline in May, falling slightly to 56.9 from 58 in April.
"Both current performance and expectations fell," which put pressure on the labor market and on profitability, economists Yan Se and Ding Shuang at the bank wrote in a note. "Credit access for small- and medium-sized enterprises is tougher" and funding costs have worsened, the analysts said.
Global financial market experts veered toward pessimism on the outlook for the economy, according to a survey of the China Economic Panel, a joint project of the Centre for European Economic Research (ZEW) in Mannheim, Germany, and Fudan University in Shanghai.
The reading for expectations slumped to minus 0.1 in May, down from 17.7 last month -- the highest since at least late 2015. The assessment of the current economic situation has also dampened, falling to 12.2 in May from 17.6 in April.
"The rather optimistic sentiment witnessed in the previous survey has thus faded" although the long-term outlook remains stable, said Michael Schroeder, a senior researcher at ZEW.
A survey-based gauge of sales-manager sentiment also hit a six-month low at 51.6 in May, dragged down by a sub-index assessing the potential of market growth, according to London-based research firm World Economics Ltd. A reading above 50 indicates expansion.
Managers in services sectors were more upbeat than those in the manufacturing sector, the report said, a sign of the Chinese economy’s gradual reliance on consumption rather than investment and export-led growth.
The "economy continued to grow in May but at a slower rate than has been the case for some time," analysts at the firm wrote, "even though sales have remained stable in May, sales managers have expressed worry that the overall growth trend can’t continue."
The S&P Global Platts China Steel Sentiment Index slumped to 33.1 this month from 45.1 in April, weighed down by the outlook for domestic steel orders. The gauge is based on a survey of between 75 and 90 China-based market participants including traders and steel- mill executives.
"China’s steel market is extremely volatile at the moment," Paul Bartholomew, a senior managing editor at S&P Global Platts in Melbourne, wrote in a release. "Underlying demand for flat steel products has been more robust, both domestically and for exports, though overseas customers have started to resist further price hikes."
— With assistance by Miao Han, and Yinan Zhao