February was not a good month for Chinese economic data.
Manufacturing and services PMIs missed to the downside, trade data underwhelmed while bank lending, after jumping spectacularly in January, decelerated sharply.
Now you can add industrial output and retail sales to that list: they were horrible.
Over January and February, industrial output grew by 5.4% from a year earlier, missing expectations for an increase of 5.6%.
Not only was it well below the 5.9% pace seen in the 12 months to December, it equalled the slowest year-on-year expansion seen since February 2002.
Not since November 2008 has output grown at such a slow pace.
Casting doubt on the current state of China’s transition towards an economy powered by services and consumption, retail sales also decelerated sharply, increasing by 10.2% in January and February compared to the same period a year earlier.
It was well below the 11.1% pace recorded in the 12 months to December and missed forecasts for a deceleration to 10.8%. It was also the slowest year-on-year rate recorded since May last year.
While industrial output and retail sales grossly under-performed, there was better news on urban fixed asset investment which accelerated to an annual rate of 10.2% in January and February, up from 10.0% recorded in December.
It was well ahead of the 9.5% pace expected, and marked the first time since July 2014 that the annual pace of investment accelerated from one month earlier.
Despite the acceleration in infrastructure spending — a clear sign that fiscal stimulus from the government is now being felt on the ground — the weakness in industrial output and retail remains a concern, particularly the latter given its importance in driving Chinese economic growth moving forward.
If there is one consolation from today’s report, it’s that no one really knows what impact the timing of the Lunar New Year has had on the figures, if any.
They were very weak, like the majority of data seen so far for February. However, whether that is due to seasonality or something more sinister remains the great unknown.
We won’t know that answer until the March figures start to hit starting with manufacturing PMI on April 1.
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