Chinese money / credit trends consistent with moderate growth
Simon Ward
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Chinese equities reacted negatively to news that annual growth in the M2 money supply fell to 12.1% in March – below the 13% official target for 2014 and the lowest on record in data extending back to 1998. The forecasting approach here emphasises the six-month change in inflation-adjusted M2*. This measure edged lower in March but is in line with its average over 2011-13 and above readings between September and November last year – see first chart.
Six-month real M2 growth has been supported by a recent fall in inflation: consumer prices* rose by an annualised 1.4% in the six months to March, down from 3.3% in the previous half-year.
Six-month expansion of the narrower M1 measure, inflation-adjusted, rose slightly in March, though remains weak by historical standards. Real bank lending and the broader “total social financing” credit aggregate, meanwhile, are growing respectably – second chart.
Slower industrial output growth since late 2013 was foreshadowed by a fall in real M2 / M1 expansion from spring 2013. The partial reversal of this decline recently suggest that industrial momentum will bottom during the second quarter, recovering slightly over the summer. Monetary trends, in other words, are not signalling a “hard landing”, although growth will remain below par by the standards of recent years.
*Seasonally adjusted.
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