September CLIEAC indicates economic slowdown in China
This report presents the September 2018 update on the Commodity Leading Index Economic Activity China (CLIEAC, see Appendix for index description).
Slowdown As indicated by our CLIEAC, the Chinese economy is facing a slowdown. In August, exports grew 9.8% and imports grew 20.0% yoy, both at a slower pace than July. China’s trade surplus with the US widened to a new record in August, adding fuel to the trade war between the world’s two largest economies. Manufacturing conditions are stable, as reflected by the PMI figures (Caixin/Markit PMI down from 50.8 to 50.6; NBSC PMI up from 51.2 to 51.3). RMB is stable against the basket of currencies of main trade partners over the month. Correspondingly, as shown in the Swirlogram, the CLIEAC places overall economic activity in a Slowdown mode. The monthly index average remained unchanged over the month at 0.52 (one year range is 0.17 to 0.98). The current quarter average of 0.58 is below the previous quarter average of 0.67 and same as the yearly average.
CLIEAC Components Over the previous period 3 component of the CLIEAC increased, 6 remained within the momentum range of +/-0.3 standard deviations (s.d.) and 5 decreased. More than half of the components (10 out of 14) remain above their longrun average of zero. On the positive side, Foreign Direct Investment experienced the largest increase of +1.59 s.d., followed by Fixed Asset Investment Real Estate and Major Coastal Ports Volume. On the negative side, Vehicle Sales exhibited the largest drop of -1.09 s.d. followed by Fixed Asset Investment Manufacturing.
Nowcasting GDP The CLIEAC has been a good indicator for overall economic activity as measured by yoy GDP growth. Using the CLIEAC as predictor in our nowcasting model substantially improves estimates of current quarter GDP relative to the benchmark autoregressive (AR) model. Based on current economic activity as reflected by the CLIEAC, the point estimate for the third quarter in 2018 yoy GDP growth is 6.72% with the lower and upper 90% confidence bounds at 6.54% and 6.9% respectively.
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Appendix: Index Composition
The Commodity Leading Index Economic Activ- ity China (CLIEAC) is a composite index that pro- vides a measure of overall economic activity in China. The index consists of a equally weighted basket of components which reflect fundamental data related to economic activity.
Each index component is Chinese New Year calendar effect-, trend- and seasonally adjusted, smoothed, normalized and updated in the index as new data becomes available. The rolling standard score (Z score) approach is applied to normalize each com- ponent before aggregation. As such, a reading above zero indicates expansion and below zero contraction of economic activity relative to the long-run average. Upwards and downwards movements of the index in- dicate improving and deteriorating economic activity respectively. The CLIEAC is composed of 14 components covering supply- and demand- side factors across five categories.
- Production: Electricity Production, Fiscal Revenue, Caixin/Markit and NBSC Purchasing Manager Index
- Transportation: Port Freight Traffic, Railway Freight Traffic
- Trade: Total Imports, Total Exports
- Consumption: Retail Sales, Real Estate Sales, Vehicle Sales
- Investments: Fixed Assets Investment Real Estate and Manufacturing, Foreign Direct Investments
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