China May money / credit data: insufficient improvement
Simon Ward
2 Comments
Six-month growth rates of narrow money (true M1) and broad credit (total social financing) rose in May but remain weak by historical standards – a further pick-up is needed to warrant shifting to a more optimistic view of economic prospects.
The rise in nominal money / credit growth in May was offset by an increase in six-month CPI inflation, due to surging food prices – real rates of expansion were little changed.
Suggested implications:
1. Economic data will remain weak through Q3 and, probably, Q4.
2. Further policy easing is required and likely.
3. Prospects for early 2020 are improving.
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Reader Comments (2)
Typical end of cycle situation.
Fed easing will be counterproductive, due to the inflation pass through like in 07/08.
It will probably also destabilise the Euro area if the dollar weakens significantly.
Labour market weakness will feed back to weaker money as it accelerates.
Agree with points 1 and 2. Although I think monetary policy cannot fix what is actually a structural problem with the global economy.
Not sure how you could think 3 is true, given previous posts on the labour market and the second chart showing real money barely reacting to Chinese stimulus efforts...
Labour market weakness is a lagging indicator and does not "feed back" to money, except indirectly by triggering policy change (implying a prospective positive effect).