Chinese economic growth has revived modestly in line with an earlier recovery in real money expansion. The latest monetary statistics suggest further improvement, although additional June details are needed to confirm this assessment.
GDP is officially estimated to have risen by 1.7% in the second quarter, up from 1.4% in the first. Annual growth was unchanged at 7.0%, implying that the government remains exactly on track to meet its full-year forecast of about 7%.
The monthly industrial output numbers* are regarded here as a more accurate reflection of economic reality. Six-month output growth reached a six-year low of 1.8% in March but has recovered to 2.6% in June (5.3% annualised). This is still well below an average of 4.4% (9.1% annualised) over 2012-14 – see first chart.
Economic weakness in early 2015 was signalled by a contraction of real narrow money during the second half of 2014. As previously explained, narrow money is best measured by “true” M1, which adds household demand deposits to the official M1 measure. The six-month change in real true M1 bottomed in December, recovering modestly in early 2015, consistent with a revival in economic momentum around mid-year.
Headline money numbers for June suggest that the economic pick-up will be sustained, with six-month real growth of official M1 and the broader M2 measure rising further. The assessment here, however, will rely on true M1, a June reading for which is not yet available**.
Another notable feature of today’s batch of activity data was a further recovery in housing sales, which, if sustained, should lift prices and housebuilding activity during the second half, with positive implications for industrial output – second chart.
*World Bank seasonally adjusted level series.
**Household deposit data are typically released one week after the headline money numbers.
