After a strong rebound in March, recent data flow suggests that China?s growth momentum has started to fade. Data released earlier today showed that industrial profits at large firms in China rose 3.7 percent year-on-year in May, according to the National Bureau of Statistics, down from 4.2 percent in April. Weak data added to concerns about the health of the world’s second-largest economy.
“The continued slowdown in May profit growth further supports our view that growth momentum has remained weak or possibly weakened further,” economists at Nomura said in a note.
Details of the report showed that performance was uneven across sectors. Industrial profits in January-April rose 6.5 percent from a year earlier, but profits in the mining sector falling 93.8 percent from a year earlier. Data largely reflects Beijing’s efforts to remove excessive capacity, particularly in the coal and steel sectors, which may be starting to have an effect.
“As the growth momentum starts to slow, the timing of a RRR cut comes closer. Nonetheless, our core view remains that fiscal policy is critical to support meaningful growth because China?s monetary policy effectiveness has dropped in recent years.” notes ANZ in a report.
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