Tuesday, 1 Dec 2020

China's recovery shows mixed signals as global outlook dims

BEIJING (BLOOMBERG) – China’s economic recovery displayed mixed signals while remaining broadly steady in October, with small businesses turning more cautious and the property market weakening even as car sales soar.

The aggregate index combining eight early indicators tracked by Bloomberg was unchanged from the previous month.

Small business confidence eased in October, with sub-indices weakening across the board, according to Standard Chartered, which surveys more than 500 smaller firms each month. As the world’s largest exporter, China is exposed to the deteriorating outlook in the rest of the world amid resurgent virus cases, threatening a domestic recovery that remains otherwise robust.

“The pace of recovery slowed in October,” Standard Chartered’s economists Shen Lan and Ding Shuang, wrote in a report. “The ‘expectations’ sub-index fell to 52.6 in October from an average of 54.7 in the third quarter, indicating a more cautious business outlook toward year-end.”

Home sales, which remained fairly resilient despite the economic downturn this year, started to cool as policy makers tightened their grip on financing to developers.

South Korean exports, a barometer of global trade, also deteriorated in the first 20 days of October – although the data was affected by fewer working days in the month. Factory deflation likely deepened in the month, weighing on profit growth at industrial firms that face a faster rise in input prices than output prices.

At the same time, car sales improved, registering solid growth in line with the general upward trend seen recently in consumer spending.

The pickup in consumption may help to spur services output, which outperformed manufacturing at smaller firms for the first time since the Covid-19 shock, according to Standard Chartered.

Purchasing managers’ indexes, due in coming days, will also give insight into the recovery. The official manufacturing index looks poised for a small retreat in October, likely because of closures during China’s golden week holiday this year, not a loss of recovery momentum, according to Bloomberg Economics’ Chang Shu.

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