China’s stimulus is starting to have tangible impacts on the economy. Domestic demand shows some signs of improvement. First, nominal retail sales growth, a proxy of private consumption, stabilized in Jan-Feb (+8.2% y/y, similar to December), helped by tax cuts. Investment recorded a modest pick-up (+6.1% in Jan-Feb 2019 after +5.9% in 2018) supported by a rise in State Owned Enterprises and infrastructure investment. On the negative, industrial production disappointed (+5.3% y/y) held back by weaker external demand: USD denominated exports contracted by c.5% in the first two months of the year. We expect Chinese economic growth to get some traction within the year (after a low of +6.2% y/y in Q1). This improvement will be driven by (i) a generous fiscal package (5% GDP) and eased monetary conditions; (ii) reduced tensions with the US. Overall, real GDP is set to grow by +6.4% in 2019.
