Economic Highlights

Monthly GDP figures for July saw the economy expanding 6.6% m/m as social restrictions eased. That left the 3m/3m rate at -7.6% and the year on year rate at -11.7%. The service sector expand by 6.1%, with industrial output rising by 5.2% and construction by 17.6%. The ONS noted that the economy has now recovered some 18.6% from April’s trough seen in April, but remains 11.7% below the pre-COVID peak seen in February.

Consumer Price Inflation surprised on the upside again, with the Core rate rising from 1.6% to 1.7% y/y. One of the main drivers was used car prices, which jumped 5.4%, spurred on by people who no longer want to rely on public transport. There was also some sign of a turnaround in bombed-out industries such as Travel and Lodging, but prices are here are still well below levels a year ago. It remains to be seen whether or not capacity is withdrawn to such an extent that demand outstrips supply, squeezing prices materially higher.

The ECB meeting brought no action. However, internal projections marginally upgraded near-term growth and the 2022 core inflation forecast. Officials expressed only modest concern over the stronger Euro. It is generally expected that more asset purchases will be announced in future and that the discount rate will stay below zero (currently -0.5%) for a long time yet.

Although M2 Money Supply growth dipped from 10.7% to 10.4% y/y, Aggregate Financing jumped from CNY 1.69 trn in July to RMB 3.58 trn in August. The credit taps remain wide open.