Skip directly to Accessibility Notice
  • Emerging Markets Debt Daily

    China Growth Stumbles in April

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    May 15, 2019

    China’s activity indicators disappointed in April, arguing for the continuation of policy support. Central European economies continue to power ahead, raising concerns that local monetary policy stances may be too lax.

    It’s a proverbial “one step back” in China today, with all activity indicators turning weaker than expected in April. Interestingly, real estate activity looked robust, with year-to-date growth edging higher to 11.9%. As regards downside surprises, there were some one-offs (including the impact of changes in the VAT rate), but a sharp moderation in the industrial production growth (to 5.4%) warrants closer inspection. One observation is that it comes on the heels of a big upside surprise in March (8.5%), and the averages show an improvement from both Q4 and March-April 2018. Still, the renewed moderation in manufacturing investment is concerning. In this context, it is important to note that funding costs for non-state enterprises remain very high (see chart below)—arguing for the continuation of policy support in this sector, as headwinds may become stronger if the current stage of the trade war drags on.

    Today there is a massive activity data dump in emerging markets, and several releases stood out from the crowd. Brazil’s yearly activity growth in March was the mirror reflection of February’s print—but with the negative sign (down by 2.52%). The persistent weakness poses risks to revenue collection, adding to the sense of urgency in approving social security reform (which is Brazil’s only chance to keep its fiscal accounts in check on a sustainable basis). Central Europe, however, is powering ahead despite growth issues in the eurozone. The above-consensus real gross domestic product growth provides justification for the tightening bias in the Czech Republic, and raises more concerns that central banks in Hungary and Romania (which kept the policy rate unchanged today) are falling behind the curve.

    “Green shoots” were lacking in today’s macro releases in the U.S. April’s retail sales, industrial production, and capacity utilization surprised to the downside, supporting the market expectation of the Federal Reserve’s rate cut in the next six months. A strong uptick in May’s Empire State Manufacturing Indexwas completely ignored. Moderating capacity utilization is often associated with lower medium-term inflation pressures—an interesting backdrop for the much anticipated Federal Reserve conference in June, when its monetary policy toolkit will be reviewed.

    Chart at a Glance

    Borrowing Costs in China

    Source: UBS. 

    Note: A state-owned enterprise (SOE) is a legal entity that is created by a government in order to partake in commercial activities on the government's behalf.

    1The Empire State Manufacturing Index measures general business conditions in New York State.


    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

    The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Certain information may be provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as the date of this communication and are subject to change.

    Investing in international markets carries risks such as currency fluctuation, regulatory risks, economic and political instability. Emerging markets involve heightened risks related to the same factors as well as increased volatility, lower trading volume, and less liquidity. Emerging markets can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.

    All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.