Chinese monetary trends suggest moderately stronger economic growth over the next six months.
Six-month expansion of real M2 fell between May and November 2013, signalling that the economy would lose momentum in early 2014, allowing for the usual half-year lead. Six-month industrial output growth fell sharply between December and March, with an April reading due tomorrow – see first chart.
Real M2 expansion, however, has been recovering since late 2013 and reached an 11-month high in April. Real M1 growth is softer but has also revived. The message is that the recent industrial slowdown is not a precursor to more significant weakness; economic momentum, instead, is likely to revive over the summer.
Real credit trends have also firmed modestly, although the broad “total social financing” measure is growing more slowly than a year ago – second chart.
The suggestion that economic prospects are improving at the margin is supported by a small rise in the new orders component of the manufacturing purchasing managers’ survey in April. Export performance, meanwhile, was better than expected last month.
Firmer Chinese signals are consistent with the forecast of a rebound in global industrial output growth from May through late 2014 – see previous post. Confidence in this forecast would be strengthened by confirmation that the longer leading indicator followed here rose in March – key component data are released tomorrow.
