Author | Political Commissar Lu: Guo Yuwei, Jiang Dongying, Cheng Zilong, Song Yanchen, Zhang Lihan, Cai Qisheng
Macroeconomic, quarterly outlook
In the first quarter of 2024, the economy will show two groups of differentiation: one is the differentiation of volume and price; Second, the divergence between growth data and financial data. Compared to the February 2024 forecast, we have made the following adjustments to our macroeconomic forecast:
First, the forecast for fixed asset investment for the whole year has been raised. Affected by factors such as equipment renewal and base adjustment, the reading of fixed asset investment in the first quarter was better than expected. With the issuance of special government bonds and the promotion of large-scale equipment renewal, it is expected that fixed asset investment will maintain steady growth.
Second, the full-year M2 and credit forecasts have been lowered. On the one hand, the cessation of "manual interest replenishment" and smart deposits may shift deposits off-balance sheet and squeeze out the financing demand caused by arbitrage. On the other hand, the adjustment of GDP in the financial sector has also reduced the demand for deposits and loans. Pay attention to the transmission of the slowdown in monetary growth to the price side.
Third, there is still room for RRR and interest rate cuts within the year. From the perspective of stabilizing bank liabilities, further reduction of deposit interest rates may need to wait for the impact of "manual interest replenishment" to further ferment. In mid-to-early May, the spread between NCD and MLF was at a low level, indicating that liquidity is still abundant, and the timing of the RRR cut may be in the second half of the year.
1. Export
Benefiting from the improvement in overseas demand, mainland exports in the first quarter increased by 2.7 percentage points to 1.5% compared with the fourth quarter of 2023. Looking ahead to the second quarter of 2024, the growth rate of mainland exports is expected to rise further due to the improvement in global demand and the low base.
From the perspective of global demand, benefiting from the relaxation of the U.S. financial conditions index and the rise in demand for replenishment, the global manufacturing PMI rebounded. From the perspective of the U.S. financial conditions index, benefiting from the rise in the stock market, the U.S. financial conditions index continued to decline from -0.16 in May 2023 to -0.53 in April 2024, indicating that the easing of financial conditions in the United States indicates the continuation of the real economy. From the perspective of the U.S. replenishment process, the U.S. ISM's own inventory fluctuated from 43.3% in October 2023 to 48.2% in March 2024, and the rebound in replenishment demand led to a rebound in global demand. Combined with the global manufacturing PMI, the global manufacturing PMI rose to 50.6% in March, ranking above the boom and bust line for three consecutive months, which also verified the rebound of the global manufacturing industry.
In terms of products, the demand for semiconductor industry chain and non-durable consumer goods has rebounded significantly. From the perspective of the semiconductor industry chain, under the background of the increase in new demand for semiconductors and the low inventory operation, global semiconductor sales rebounded from -21.4% in April 2024 to 16.3% in February 2024, which helped drive the export growth of semiconductor-related products in the mainland. From the perspective of non-durable consumer goods, the inventory of non-durable consumer goods in the United States in February was -2.0% year-on-year, which was at the 22.3% quantile since the historical data were available in January 1993.
From the perspective of base effect, the mainland's export base in the second quarter of 2023 was lower due to the lack of overseas demand, and its exports increased by only 0.9% month-on-month, the lowest value since the same period in 2020, which also helped to boost the export reading.
2. Investment
Infrastructure investment is expected to remain resilient in the second quarter. Since April, the issuance of local special bonds has slowed down, and the operating rates of asphalt and cement have been running at a low level, reflecting that the physical workload of current infrastructure projects needs to be improved. The National Development and Reform Commission (NDRC) said it would encourage all additional treasury bond issuance projects to start construction by the end of June this year[1]. With the acceleration of the construction and implementation of additional treasury bond projects, the amount of new infrastructure projects and physical work started in May and June may gradually accelerate, and the base decline in the same period last year is expected to remain resilient in the second quarter.
Real estate investment may remain low in the second quarter. In April, new home sales and land transactions were at the lowest level in the same period in recent years, the inventory-to-sales ratio of commercial housing continued to run at a high level, and the year-on-year decline in the source of funds for real estate development continued to expand since 2024. In the context of low sales, high inventory and tight capital, it is expected that the investment of real estate enterprises will remain low year-on-year. In addition, on April 30, the Ministry of Natural Resources issued the Notice on Doing a Good Job in the Supply of Residential Land in 2024, reiterating the regulation of land supply in cities with a high commercial housing de-conversion cycle. The tightening of land supply will also weigh on real estate investment.
Manufacturing investment will continue to play a strong role in driving the industry. Manufacturing production continued its expansion performance this year in April, with the manufacturing PMI production sub-item rising 0.7 percentage points month-on-month to 52.9%. In addition, the cultivation and development of new quality productivity has become the main driving force for manufacturing investment. With the continuous promotion of the equipment renewal policy, the growth rate of investment in the purchase of equipment and tools has been accelerating. The development trend of domestic industrial upgrading will also support the continuous growth of technological transformation and investment in high-tech manufacturing. It is expected that the manufacturing industry will maintain the high growth trend of the first quarter in the second quarter.
3. Consumption
According to the questionnaire of urban depositors released by the central bank in the first quarter, the proportion of residents who chose "more consumption" increased by 0.1 percentage points compared with the previous period, and the consumption tendency of residents, measured by the proportion of per capita consumption expenditure in per capita disposable income, showed that the consumption tendency of residents in the first quarter hit a new high in the same period since the epidemic, indicating that consumption has recovered.
In terms of service consumption, there were more holidays in the second quarter, which formed an additional pull on service consumption. Judging from the distribution of catering revenue in each month of the first quarter, the tendency of residents' consumption to concentrate on holidays has increased. From January to February 2024 (the month of the Spring Festival), the proportion of catering revenue is as high as 70.5%, which is further increased compared with 2020 and 2023, and second only to the level of 2022, indicating that the driving effect of the Spring Festival holiday is more obvious. In the second quarter, there were small and long holidays in each month, and service consumption may have a bright performance, driven by concentrated consumption during holidays. In addition, after the low base effect fades, catering revenue in March ended the double-digit growth of more than a year, and the year-on-year growth rate of service consumption may return to normal, and the scissors gap with commodity consumption will gradually narrow.
In terms of commodity consumption, since the beginning of this year, the effect of the trade-in policy for consumer goods has been differentiated, which has a more obvious effect on the post-real estate cycle to boost commodities. Compared with the growth rate in the first quarter of this year and the whole year of 2023, although the cumulative year-on-year decline in the sales area of commercial housing has deepened; However, the cumulative retail sales of building decoration increased from -7.8% to 2.4% year-on-year, the retail sales of home appliances and audio and video increased from 0.5% to 5.3%, and the furniture also increased slightly by 0.2 percentage points. The cumulative year-on-year growth rate of automobiles fell from 5.9% to 3.8%, which was dragged down to a certain extent by the high base of the previous year.
Fourth, prices
In terms of CPI, the second quarter may continue to show a bottoming out trend. The monthly CPI reading in the first quarter of 2024 fluctuated greatly due to the Spring Festival, but the overall trend was stable. In terms of food, although the pig industry to capacity further into the deep water area, but before and after the Spring Festival commercial pigs are still in a state of oversupply, although the Spring Festival demand in the short term to boost pig prices, but the first quarter as a whole pig prices remained in a low range. Crude oil prices were affected by the intensification of geopolitical tensions at the beginning of the year, and the overall volatility and upward movement led to the rise of domestic related commodity prices. In the service sector, the volatility of service prices around holidays has increased significantly since 2020, with the CPI of tourism in February and March being 13.1% and -14.2% month-on-month, respectively, the highest and lowest levels in the same period in the past 10 years.
Looking ahead, in terms of pig prices, the market has strong expectations for the peak season in the second half of the year. This round of pig industry capacity in the duration and capacity of the capacity has been close to the previous 2022 pig cycle in the production capacity stage, and in March, individual industry leaders announced debt restructuring, some market participants believe that this round of pig price downward cycle or has entered the end, the recent piglet price has risen rapidly, and the relatively stable price of commercial pigs reflects the operation of some farmers in advance of the layout of the peak season market in the second half of the year. In addition, recent floods in some areas have exacerbated market concerns about the spread of African swine fever. At present, the upward trend of pig prices is still our benchmark judgment, but considering that the industry has gradually entered a mature period, the volatility of pig prices and production capacity will decline with reference to international experience, and pig prices may show a moderate upward trend during the year.
In terms of service prices, the housing component accounts for a relatively high proportion of the CPI basket, while the year-on-year M1 has a certain leading role in the year-on-year CPI of rent. Judging from the trend of M1, the year-on-year rental CPI may fall moderately during the year. Considering the above factors, the CPI in the second quarter may rebound to 0.4% year-on-year.
In terms of PPI, the year-on-year decline in PPI is expected to narrow. In terms of major products, crude oil is expected to continue to strengthen due to the approaching peak season, low overall inventories and the ongoing geopolitical crisis. In terms of black bonds, infrastructure development in the first quarter lagged behind market expectations, and the overall price of black series fell, and with the subsequent issuance of local bonds and ultra-long-term government bonds, infrastructure demand is expected to improve. In terms of non-ferrous metals, the price of metals represented by copper has continued to rise recently, or due to the recent decline in the utilization rate of copper minerals: on the one hand, the difficulty of mining has increased due to the decline in global copper ore grades; On the other hand, overseas bad weather, strikes, community road blockages, technical failures and other emergencies have affected copper mining to varying degrees. Combined with the above factors, the PPI in the second quarter may rebound to -1.5% year-on-year.
Fifth, the scale of social financing
After measures such as stopping the "manual interest supplement" to squeeze out idling funds, the growth rate of loans may slow. In terms of social finance, from the perspective of government bonds, in 2024, due to factors such as the replenishment of retained funds for the additional issuance of treasury bonds in 2023 and the progress of project review, the wholesale of local bonds in advance will be slow. The April Politburo meeting called for the early issuance and use of ultra-long-term special treasury bonds, the acceleration of the issuance and use of special bonds, and the maintenance of the necessary intensity of fiscal expenditure. Government bond issuance is expected to accelerate in the second quarter, providing support for the scale of government bond financing.
Judging from the new RMB loans, the financing demand of residents and enterprises is currently weak. In March and April, the weighted year-on-year growth of the transaction area of first-hand and second-hand houses recorded -38.4% and -30.7% respectively, and the weak demand for housing continued to affect residents' credit delivery. On the corporate side, in March, the return on assets of industrial enterprises with rolling 12-month profits recorded 4.5%, down 0.06 percentage points from February, and weaker profits dragged down corporate loan demand. At the same time, it should be noted that the policy authorities' demand for credit scale may weaken, and credit growth will change from extension to connotation. Since 2017, the gap between loan growth and nominal GDP growth has widened. Nominal GDP was higher than loans in the first quarter of 2017, and nominal GDP was 4.0% year-on-year in the first quarter of 2024, compared to 9.6% in loans. As the demand for scale declines, the gap between loan growth and nominal GDP growth is likely to narrow.
Annotation:
[1] Source: National Development and Reform Commission: Completed the preliminary screening of local government special bond projects, and promoted all additional treasury bond projects to start construction before the end of June this year, The Paper [EB/OL], 2024/04/17[2024/05/06], https://www.thepaper.cn/newsDetail_forward_27061480
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