April’s monthly batch of activity indicators was disappointing and increased pressure on policymaker to enlarge expansionary measures. Industrial production growth slowed to +5.4% y/y in April (after +8.5% in March). Retail sales, a key gauge of private consumption, decelerated to +7.2% y/y (from +8.7%). Investment expanded at a slower pace (+6.1% y/y in January-April, after +6.3% in January-March) due to weaker private investment (+5.5% y/y in January-April). Public capital expenditures continued to gain traction (+7.8 y/y YTD). This follows mixed data on trade (exports down, imports up) and disappointing manufacturing PMIs. Regarding the outlook, growth headwinds have increased significantly over the past two weeks. U.S.-China trade tensions have escalated with both countries raising tariffs against each other: 25% on USD200bn of imports from China in the U.S. (read more here); 5% to 25% tariffs on USD60bn of imports from the U.S. in China. Against this background, policy support is set to increase. We have penciled in three RRR cuts of 100bp each and two policy rate cuts of 25bp by the end of this year.
