China’s data releases so far for the month of April have largely surprised to the upside.
Source: Bank of Singapore, Bloomberg
First, April’s Caixin purchasing manager indices were stronger than expected. Manufacturing PMI picked up from 50.6 to 51.9 while services PMI increased from 54.3 to 56.3, returning to strongly expansionary territory above 50.0 as the first chart shows. This signals consumption is likely to have speeded up at the start of Q2’21 as fear of the virus continues to ease in China.
Second, April’s exports strikingly rose by 32.3%YoY, raising China’s monthly trade surplus to USD42.8 billion. The second chart shows exports did spike by 155%YoY in February. But the comparison was exaggerated by China’s exports being very weak when the pandemic first struck China in February and March last year.
Source: Bank of Singapore, Bloomberg
In contrast, April’s data this year wasn’t distorted by base effects as the virus had eased in China by Q2’20. Very strong exports last month signal demand remains high for China’s consumer goods as the pandemic continues abroad.
Source: Bank of Singapore, Bloomberg
Third, April’s data showed China’s consumer price index (CPI) inflation remains moderate at 0.9%YoY as the third chart shows. But producer price index (PPI) inflation surged to 6.8%YoY, reflecting rising commodity prices fueled by China’s recovery from the pandemic.
Stronger domestic consumption, soaring exports to the rest of the world and inflationary pressures in factory gate prices all signal China’s growth is accelerating again in Q2’21 after rising modestly by 0.6%QoQ in Q1’21. We forecast China’s GDP to expand by a sharp 8.7% in 2021 and see the CNY strengthening further to 6.15 versus the USD.
