Money and credit trends suggest that Chinese economic momentum will remain weak through H1 2020.
The PBoC today released detailed monetary data for October, allowing calculation of the preferred narrow and broad money measures here, i.e. “true” M1 including household demand deposits and M2 excluding bank deposits held by non-bank financial institutions. Six-month growth rates of the two measures eased further – see first chart.
The monetary slowdown suggests that a rise in two-quarter nominal GDP expansion since Q1 2019 will reverse into H1 2020.
The forecasting approach here emphasises narrow money but the Chinese broad money measure used here (not headline M2) has performed equally well as a leading indicator historically, sometimes moving earlier. Growth of this measure has now retraced most of its recovery since H1 2018.
October credit numbers were also disappointing, with six-month growth of total social financing the lowest since April.
Growth of the three measures peaked in May-June, with subsequent weakness probably related to failures of several regional banks and an associated tightening of funding and credit conditions, which appears to have offset monetary policy stimulus, at least temporarily.
Reflecting Chinese weakness, six-month growth of global (i.e. G7 plus E7) real narrow money growth may have slipped back to 2.3% (not annualised) in October from 2.7% in September – second chart. The US, Japan, India and Brazil have also released October money data, accounting – together with China – for 70% of the global aggregate.
The September-October numbers are above the range over December 2017-August 2019 and suggest that nine-month-ahead economic prospects have improved but a move above 3% is needed to confirm a recovery scenario. This is unlikely without a rebound in Chinese money trends.