Chart of the Week: China’s economy turns a corner

According to Fathom’s China Momentum Indicator 2.0 (CMI 2.0), annual real economic growth was 6.7% in 2017, the fastest pace in five years. But CMI 2.0 peaked in the middle of the year at 6.9% – since July it has fallen for five consecutive months, at an ever-increasing pace.

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Fathom’s CMI 2.0 fell 0.2 percentage points in December, ending the year at 6.5%. Our CMI 2.0 is based on ten indicators, all but one of which are shadow measures of economic activity, not used in the construction of the usual expenditure components of GDP. Almost all of these have turned down since the middle of 2017. Growth in railway freight volumes and real imports slipped into negative territory in the final month of the year. As we stated two years ago, the decision by policymakers to throw in the towel on rebalancing and ‘double down’ would only boost growth for a while. Ultimately, it implies even more excess capacity, and sets China’s economy on a lower long-term growth path. Consequently, we believe CMI 2.0 will slow further from here, averaging 6.2% in 2018.

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