A post in November noted that Chinese monetary trends were weakening again, suggesting a loss of economic momentum in early 2015 and a need for further policy easing. A slowdown was confirmed by yesterday’s batch of economic data covering January and February. Industrial output, for example, is estimated here to have risen by only 3.0% in the six months to January / February, or 6.2% annualised, versus average growth of 9.3% per annum over the prior three years.
Monetary policy, however, has loosened since November, with two cuts in official interest rates and one in required reserves. This shift is being reflected in a recovery in monetary growth, promising better economic news by mid-year. Six-month growth of real (i.e. inflation-adjusted) M2 rose in January and February, returning to the middle of its recent range. The narrow M1 measure has also rebounded after notable weakness in late 2014 – see first chart.
Credit trends, similarly, have revived, with bank loans regaining market share in response to an ongoing official clampdown on “shadow” financing – second chart.
Global industrial output growth has firmed since summer 2014 despite a Chinese slowdown. The monetary evidence suggests that the Chinese drag will now fade.
