MLF interest rate cut sends a signal of stable growth, and the growth rate of economic indicators in May has fully fallen. Industrial | Month | Interest rate cut

The growth rate of investment continues to slow down, consumption recovery is weak, and industrial production is declining. As the base effect gradually subsides, major economic indicators in May have fallen comprehensively, and the problem of insufficient endogenous driving force for economic recovery is becoming increasingly prominent. The market is looking forward to more countercyclical adjustment policies.

According to data released by the National Bureau of Statistics on June 15th, the total retail sales of consumer goods in May increased by 12.7% year-on-year, a decrease of 5.7 percentage points from the previous month; The added value of industrial enterprises above designated size increased by 3.5% year-on-year and decreased by 2.1 percentage points. From January to May, the national fixed assets investment increased by 4.0% year on year, down 0.7 percentage points from January to April.

Spokesperson of the National Bureau of Statistics, Fu Linghui, stated at the press conference of the State Council Information Office that there is insufficient demand in the domestic market, prices are falling, business entities are facing more difficulties, and the foundation for economic recovery is not solid. Despite facing pressure and challenges, the long-term positive fundamentals of the economy have not changed, and the characteristics of strong resilience, great potential, and broad space are obvious. In the third and fourth quarters, the economic operation will return to a normal level of growth. From the perspective of the whole year, there is a lot of strong support for the economy to achieve the expected development goals.

Faced with the slowing pace of economic recovery, the policy of stabilizing growth is further strengthening. Following the 7-day reverse repurchase and SLF interest rate cuts, on the 15th, the central bank lowered the MLF interest rate by 10 basis points, while increasing the amount of renewal of the maturing MLF.

Multiple experts have analyzed First Financial that the current policy interest rate cut will effectively boost market confidence, reduce the cost of physical financing, and stimulate the recovery of financing demand. In the face of the current weak domestic and international demand, we need to continue to increase our efforts in countercyclical adjustment, including continuously considering reducing reserve requirements and interest rates to reduce the financing costs of enterprises and lower the debt interest payment costs of residents, enterprises, and governments.

Consumer growth rate has declined

Since the beginning of this year, consumption growth has played an important role in stabilizing economic growth. From the situation in May, consumption continued to maintain rapid growth.

In May, the total retail sales of consumer goods reached 3780.3 billion yuan, a year-on-year increase of 12.7%, a decrease of 5.7 percentage points from the previous month; A month on month increase of 0.42%.

"Although there has been a slight decline compared to last month, the main impact is still the increase in the previous year's base, and the market sales growth is stable." Fu Linghui said that currently, the overall employment situation has improved, which is conducive to increasing residents' income and improving their consumption ability. Various departments actively introduce policies to promote consumption, which will enhance residents' willingness to consume. The deep integration of online and offline consumption, the accelerated development of new forms and models of consumption, is also conducive to expanding consumption. The enhanced driving effect of consumption will effectively promote economic recovery and improvement.

Since the comprehensive restoration of normal operation of the economy and society, residents have experienced a rapid recovery in contact based aggregation service consumption. In addition, the "May Day" holiday effect has significantly driven the growth of service consumption in catering, culture, tourism, and other areas. In May, the national catering revenue increased by 35.1% year-on-year, and movie box office revenue doubled; During the May Day holiday, domestic tourism revenue and number of commercial performances have significantly increased.

The consumption of commodities such as automobiles continues to grow. As car sales enter the peak season, some regions have increased subsidies, and car sales have maintained rapid growth. In May, the retail sales of automotive products by units above the quota increased by 24.2% year-on-year. The retail growth of new energy vehicles is also relatively fast.

According to Fu Linghui's analysis, China's consumption will recover in the future. "However, it should also be noted that there are still some constraints on consumption growth, and there is still a lot of room for improvement in residents' consumption ability and willingness. In the next stage, we should continue to promote stable growth, employment, and prices, implement various policies to promote consumption, actively restore and expand traditional consumption, accelerate the cultivation of new consumption, promote stable consumption growth, and promote sustained and healthy economic development." Fu Linghui said.

Investment in three major areas continues to slow down

In terms of investment, from January to May, the national fixed assets investment was 18881.5 billion yuan, up 4.0% year on year, 0.7 percentage points lower than that from January to April.

Looking at different sectors, infrastructure investment increased by 7.5% year-on-year from January to May, a decrease of 1.0 percentage point compared to the first four months. The national real estate development investment decreased by 7.2% year-on-year, an increase of 1.0 percentage point from January to April, marking the third consecutive month of expansion. Manufacturing investment increased by 6.0% year-on-year, a decrease of 0.4 percentage points from the first four months, and the growth rate has been continuously declining since October last year. Investment in all three major areas continues to slow down.

Li Chao, Chief Economist of Zhejiang Securities, stated that the high growth rate of infrastructure investment mainly relies on the rapid issuance of new special bonds. However, with the concentrated issuance of special bonds in the first half of the year, if the revenue from land sales remains relatively weak and the special bonds are gradually issued out in the third quarter, there may be pressure on the funds for infrastructure to be in place.

In fact, according to the latest social financing data released by the central bank on June 13th, the net financing of government bonds in May was 557.1 billion yuan, a year-on-year decrease of 501.1 billion yuan.

More importantly, private investment in fixed assets investment has shrunk. From January to May, the private fixed assets investment was 10191.5 billion yuan, down 0.1% year on year, and down 0.4% year on year from the previous four months.

According to a report released by the National Economic Research Center of Peking University, the global economic downturn and insufficient effective demand have suppressed the expansion and reproduction of enterprises. The survey questionnaire of entrepreneurs compiled by the People's Bank of China shows that in the first quarter, the domestic order index and export order index were 42.9 and 39.5, respectively, both at low levels. Affected by the decline in profits of industrial enterprises, the growth rate of investment in the manufacturing industry has further declined. From January to April, the profits of industrial enterprises above designated size nationwide decreased by 20.6% year-on-year, with manufacturing industry profits decreasing by 27.0% year-on-year.

Industrial growth rate turned from a decrease to an increase month on month

In terms of industry, the added value of industries above designated size in China increased by 3.5% year-on-year in May, a decrease of 2.1 percentage points from the previous month; The month on month growth was 0.63%, compared to a month on month decrease of 0.47%.

Fu Linghui stated that industrial production has overcome the adverse factors of weak market demand and price decline, and overall continues to recover. The year-on-year growth rate of industrial added value above designated size in May has slowed down compared to the previous month, mainly due to the impact of the increase in the same period last year's base. Excluding the base factor, industrial production remains relatively stable.

Looking at the three major categories, the added value of the mining industry decreased by 1.2% year-on-year, the manufacturing industry increased by 4.1%, and the production and supply of electricity, heat, gas, and water increased by 4.8%. The added value of the equipment manufacturing industry increased by 8.0% year-on-year, 4.5 percentage points faster than that of large-scale industries.

In the next stage, industrial production still faces certain pressures. According to Fu Linghui's analysis, the main reasons are the sluggish global economy, hindered industrial exports, insufficient domestic demand, a decrease in industrial product prices, sluggish production in some industrial industries, more operational difficulties for enterprises, and greater pressure on small and micro enterprises. The current market pressure is high, and it will take some time for China's traditional industrial transformation and upgrading, as well as the growth of emerging industries. It is still difficult for enterprises to adjust and transform.

Fu Linghui emphasized that overall, the future trend is developing well. With the deepening implementation of the innovation driven strategy, solid progress has been made in industrial upgrading, and new driving forces have grown rapidly, continuously enhancing support for industrial production. Especially, China attaches great importance to the development of the manufacturing industry, deeply implements the strategy of building a strong manufacturing country, and various policies and measures to promote the development of the manufacturing industry are gradually becoming effective, which will be conducive to the sustained and healthy development of industry. For example, in recent years, China has actively supported the development of new energy related manufacturing industries, and the results have been continuously evident. Since the beginning of this year, the production and export of new energy vehicles have achieved significant growth, and market competitiveness has steadily increased.

Stable growth policies still need to be strengthened

Faced with the increasingly prominent problem of insufficient demand and the slowing pace of economic recovery, macroeconomic policies need to be strengthened in a timely manner to avoid interruptions in the recovery momentum.

Luo Zhiheng, Chief Economist of Yuekai Securities, stated that China's exports are currently facing downward pressure, the cumulative growth rate of investment is declining, consumer expectations have not improved significantly, and domestic market demand is insufficient. Therefore, policies to stabilize growth should be strengthened.

On June 15th, the MLF interest rate cut was implemented. The announcement on the central bank's website stated that on the same day, a 2 billion yuan 7-day reverse repurchase operation and a 237 billion yuan 1-year MLF operation were carried out in the open market, with bid interest rates of 1.9% and 2.65% respectively, compared to 1.9% and 2.75% last time. Data shows that there were 2 billion yuan of reverse repurchase and 200 billion yuan of MLF due on the same day.

Wang Yunjin, Senior Researcher at Zhixin Investment Research Institute, believes that the reduction in MLF interest rates will drive short-term and medium to long-term interest rates to decline synchronously, support commercial banks to slightly lower LPR, continue to drive down social financing costs, accelerate the pace of demand recovery, and stabilize economic growth expectations.

Luo Zhiheng believes that a decrease in interest rates means a reduction in financing costs for enterprises, a reduction in debt burden, and a reduction in the burden of housing loans for residents, which in turn will have a driving effect on consumption and investment. But in the absence of a fundamental improvement in income expectations, the policy's driving effect may be weak. Therefore, this interest rate cut is more of a signal of "countercyclical adjustment". In order to boost effective demand, active fiscal policies, real estate policies, and other cooperation are also needed.

The National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Finance, and the People's Bank of China issued a notice on June 13, which clearly stated that this year's cost reduction should adhere to the combination of comprehensive promotion and highlighting key tasks, institutional arrangements and phased measures, the combination of reducing explicit costs and implicit costs, the combination of cost reduction and burden reduction with transformation and upgrading, and ensure that all cost reduction measures are implemented and effective, effectively boosting market confidence.

As an important lever to further promote economic stabilization and recovery, and enhance endogenous development momentum, consumer promotion policies have also been intensively implemented. The Ministry of Commerce, the Ministry of Industry and Information Technology, the National Development and Reform Commission and other departments have issued notices on promoting green and intelligent home appliance consumption in 2023 and organizing automobile consumption promotion activities, focusing on bulk consumption such as automobiles and home appliances to further tap into consumption potential.

On the 15th, spokesperson for the Ministry of Commerce, Shu Jueting, stated that with the arrival of the peak summer consumption season, residents' consumption needs for holidays, leisure shopping, travel and other activities will be further released. With the support of relevant consumer promotion policies, it is expected that the consumer market will continue to maintain a stable growth trend in the second quarter. The Ministry of Commerce will continue to improve consumption policies, strengthen departmental coordination, and promote the introduction of a series of policy measures to support the recovery and expansion of consumption; At the same time, we will continue to organize consumer activities and innovate consumption scenarios.

Pang Ming, Chief Economist of JLL Greater China, told First Financial that in order to solve short-term difficulties such as weak endogenous driving force and insufficient demand in economic operation, monetary, fiscal, industrial, technological, and social policies need to be more coordinated and coordinated, focusing on driving demand through consumption and investment, striving to stabilize market expectations, promoting a virtuous cycle of technology, industry, and finance, and forming a good situation of promoting high-quality development together.