Research Team at Nomura, suggests that China’s positive industrial profits growth in January-February is further evidence that growth momentum is stabilising, but at a low level.
Key Quotes
“Industrial profit growth rose to 4.8% y-o-y (ytd) in February from -2.3% in 2015, driven by a combination of last year’s low base, milder producer price deflation and possibly reduced interest payments after several rate cuts.
The details, however, paint a less rosy picture. Profit growth in overcapacity-burdened industries continued to worsen (to -72.9% y-o-y (ytd) in February from -67.9% in 2015 for ferrous metal smelting and processing corporates).
Improvements to business operation conditions have also been underwhelming. Inventory growth of finished goods did fall to 0.7% y-o-y (ytd) in February from 3.3% in December, but both average inventory turnover days and the collection period of accounts receivable increased.
Overall, we maintain our forecast for real GDP growth to slow to 6.0% y-o-y in Q1 (we expect a noticeably smaller contribution from the financial services sector) and trend down in subsequent quarters, which would result in annual growth of 5.8% this year.”
(Market News Provided by FXstreet)