Episode Details

Kia ora,

Welcome to Monday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

Today we lead with news the world's second-largest economy is having trouble convincing anyone it is under control.

This coming week it will be all about the US Fed rate decisions, and the size of the rate cut. We will get that on Thursday NZT. And there will be central bank rate decisions this week from Japan, Norway, China, the UK, and Turkey. Australia will release its labour market updates. And of course, the New Zealand Q2 GDP result will also come Thursday.

But over the weekend it was mostly about China.

China’s industrial production rose by +4.5% in August from a year ago, falling short of market forecasts and slowing from July. This was the softest growth since March, and the fourth straight month of a slowdown. But at least it was confirmed by their electricity production data, up +5.8%. It is rare that electricity use exceeds industrial production expansion, so perhaps that is an encouraging signal for them.

But China's retail sales underperformed, rising just +2.1% from a year ago in August, moderating from +2.7% growth in the prior month and missing market consensus of +2.5%. Lower car sales kept a lid on this sector amid unusual weather events this summer.

New home prices in 70 cities fell faster, down -5.3%in August, after a -4.9% fall in the previous month. It was the 14th straight month of decrease and the steepest pace since May 2015, despite Beijing's extensive measures to reverse a downturn in the property sector, such as trimming mortgage rates and reducing home buying costs.

Every one of those cities recorded a fall in these official stats for used houses. The largest was the -13% fall in Wuhan. When resales lose money it will be very hard to sell new ones.

So it will be no surprise that their August data shows new loan growth remains very subdued in what is extending to be unusual difficult trading conditions. Chinese banks extended +¥900 bln in new yuan loans in August, above a fifteen-year low of ¥260 bln in July, but less than the expected bounce-back. It is also the lowest value for an August month since 2015.

And it won't be a surprise to that August FDI was particularly weak, down more than -48% in the year to August from the same period in 2023.

We have noted the trend before, but the weak Chinese economy is driving a bond rally there. Yields fell to a new record low on Thursday, and state banks have been drafted in to sell some of their long-dated bonds to try and stem the rally. But until more confidence returns to the Chinese economy generally, it unlikely to work. If Beijing institutions don't have the firepower to move this market, it is unlikely the core SOE banks do either.

In a rare statement with the loan growth data release, the central bank indicated that new stimulus is on the way to shore up the economy. Late last week, President Xi exhorted his government to ensure the 5% growth target is reached this year. Xi's int