China Leading Indicators – downside risks confirmed

Allan von Mehren Danske Bank A/S

Summary: More evidence of a slowdown unfolding

Chinese leading indicators have pointed to a peak in the cycle since the beginning of the year ( see Why China’s Growth is Strong Now – and Why it will Slow Down in 2017, 5 January).

The PMI data for May confirm our view of downside risks to the Chinese economy this year.

Why slow down? Two main engines of recovery are turning lower. 1. Slowing housing market. 2. Fading boost from infrastructure.

Recently, financial stress has pushed bond yields higher adding to the cumulative policy tightening, which is why we now see downside risks.

There are also signs that the Chinese export engine is losing some steam – a sign the global manufacturing cycle is turning lower.

China is moving from a reflationary force in 2016 to a deflationary force in 2017.

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Author

Allan von Mehren

Danske Bank A/S

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