Here’s our summary of key economic events over the weekend that affect New Zealand, with news markets are starting to worry that the Chinese economic revival may not be sustainable.
In China, their official factory PMI expanded marginally faster in July than in June. Their service sector PMI is expanding much faster, but slowed marginally in July than June. Both were boosted by construction activity, on official stimulus priority so it may not be sustained. And new order growth was modest in both sectors even if they were expanding. But we should note that the rival private sector survey, which will be released later today has been recently posting more expansive results that these official surveys.
China has reverted to its old playbook of local construction projects and encouraging exports to weather this economic crisis. In fact, new data shows it granted NZ$175 bln in export tax relief in the first half of 2020. These rebates “effectively reduce the funding pressure on export companies in China and reduce their cost of funds.”
Elsewhere in Asia, June industrial production in Japan has come in better than expected and positive from May. And retail sales in South Korea came in much better than expected and a large +6% rise compared with the same month in 2019. Both are positive early signals, just like the Chinese PMI data.
However, Taiwan GDP growth for Q2-2020 didn’t eventuate and there was a surprise small contraction for them.
In Hong Kong, their jobless rate has risen to its highest in 15 years. And Beijing is pulling some crude strings, banning liberal candidates, postponing their election for a year, and allowing the existing Assembly to expire so they can appoint interim legislators. It is a pretty disgraceful sham, using the pandemic as cover. But it is what autocrats do.
In the EU, GDP dropped -14% in the June quarter from the same period in 2019 in the steepest one quarter drop in history. That follows a -2.5% fall in Q1-2020 on the same basis. Both German and French results were ugly.
The other large economy, Japan, is yet to report GDP results, but they are expected to show a Q2-2020 fall of -26% annualised rate (about -9% in the second quarter alone).
The US released personal income and expenditure data for June and the results seem unsustainable. Personal income fell -1.1% on top of the -4.4% fall in May. But personal spending rose +5.6% in June on top of the +8.5% rise in May. Dipping into household reserves and savings to maintain spending can only last so long, and this data suggests they are much closer to a widespread earthquake in the way American household budgets are managed.
American consumer sentiment is slipping too. It sank further in late July the coronavirus weighed increasing on the population. In the last four months, this sentiment Index has recorded a decline of -25% from the same period in 2019. The ending of some income support in the next month or so isn’t going to help sentiment.