Institutions bullish on May economic data China's economic recovery is intensifying

Goldman Sachs and Nomura believe that the forthcoming May Chinese economic activity figures are likely to resemble those of April, as China's domestic demand-driven economic recovery is growing in momentum.　　Private investment further accelerated both Goldman Sachs and Nomura believe that the forthcoming May China economic data is likely to be similar to that of April, with fixed asset investment growth and strong retail sales supporting industrial growth, which would greatly offset the impact of very weak exports. Goldman Sachs believes that the year-on-year increase in industrial value in May may remain at around 7.3% per cent, roughly the same as last month. The trend of growth recovery is still strong, and the risk of a significant pullback in the short term is slim.　　In the first 5 months of this year, the year-on-year increase in fixed asset investment may have risen from 30.5% to 32% in the first 4 months, meaning that the year-on-year increase could be as high as 35% in May. Goldman Sachs analyses that while government-led infrastructure investment growth is likely to remain strong, private fixed-asset investment growth is expected to accelerate further, particularly in the property sector.　　Real estate investment in May is expected to rise from 7% in April to more than 10%.　　Nomura believes that, as a result of the further implementation of the fiscal stimulus package, fixed asset investment is expected to continue to increase since the beginning of the year; industrial production and retail sales will improve; Inflation will not rise in the short term. Goldman Sachs expects May CPI year-on-year growth to rise from 1.5% to 1.3% in April.　　However, given the sharp decline in economic activity in the second half of last year, it will take at least a few months to fill the output gap, and inflation data won't rise sharply in the short term.　　Goldman Sachs said that although year-on-year growth in May could weaken further from 6.6% in April to 6.9%, the Quarter-on-quarter data could be the first positive increase since September 2008. Nomura believes that as the weekly data for many food prices have started to rise, the overall CPI for May should be moderated. Nomura Securities analysis, the overall CPI in April is still in a deflationary region, it is expected to continue to the third quarter. Inflation is expected to re-emerge in the second half of the year as the base effect fades and the impact of stimulus packages pushes up producer prices, and inflation in the fourth quarter rises to 2.1% Year-on-year.　　However, with inflation below expectations for the first four months of the year, the average CPI for 2009 may be just 0.2%. Monetary credit or continued hyper-expected growth Goldman Sachs believes that the market has consistently underestimated the growth of money and credit in recent months.　　Strong demand for corporate loans from fundamentally good companies will strengthen further as the economic situation improves, offsetting the softening in lending demand triggered by big infrastructure projects after the surge in the early years. Goldman Sachs points out that the most obvious is the change in property-related loans.　　The year-on-year increase in renminbi lending in May is expected to rise from 29.7% in April to around 30.6%, with the M2 money supply rising from 26% to 26.5% in April. Nomura SecuritiesSaid there was no need for the PBOC to cut interest rates further this year, mainly because the liquidity situation was already very loose, loan growth was very strong and economic activity indicators were showing positive kinetic energy. With inflationary pressures in 2010 expected to raise interest rates by 81 basis points next year, moderate inflation is expected to occur in the fourth quarter of 2009 to 2010, but the risk of asset price inflation is rising, as ample liquidity supply could affect inflationary expectations. For this reason, along with a sharp rise in fixed asset investment and loan growth, Nomura believes that the risk of policy tightening is rising, but it is unlikely to be full austerity in the coming months.