Fathom’s CMI Falls To 2.3%
Fra Fathom
we have long been skeptical about the accuracy of China’s official GDP data. Below, we present our latest measure of China’s economic activity, our CMI. With a reading of 2.3% in December, this points to a far slower pace of growth than the 6.8% recently reported by China’s National Bureau of Statistics.
Our CMI combines rail freight volumes, electricity production and nominal bank lending; all three of which were identified by Premier Li Keqiang as providing a better gauge of economic activity than the official estimate of GDP. Both electricity production and rail freight volumes fell in the twelve-months to December, down 8.3% and 3.7%, respectively. The third component of our CMI, nominal bank lending, grew by 15.0% over the twelve-months to December — marking the slowest pace of expansion since June 2015.
Data released last week confirmed that China’s old growth engine is stuttering, with the official Manufacturing PMI dipping to a 41-month low in January. Meanwhile, as we have set out in the past, we find precious little evidence of economic rebalancing. Consequently, with China’s authorities struggling to restore growth internally, we believe that the People’s Bank of China will have little option but to relax the US dollar peg. If the US Federal Reserve were to raise rates more aggressively than currently priced in, dragging both the US dollar and renminbi higher, this would pile yet more pressure on the People’s Bank of China — until it can take no more.
