Voices of Moneyfarm: China GDP & UK inflation data

This week Moneyfarm’s Chief Investment Officer, Richard Flax, gave his thoughts on the latest macro data from China, as well as the UK’s latest inflation data print, to the media. You can read Richard’s comments as part of pieces in both the Daily Mail and Yahoo Finance. Here’s what Richard had to say about a growing Chinese economy and slowing UK inflation:

China’s Q1 GDP: Economic growth amidst turbulence

“China’s GDP surpassed expectations, reaching 5.3% for Q1 2024, marking a robust start to the year for the world’s second-largest economy. This unexpected increase not only defied projections but also exceeded Beijing’s ambitious growth target of ‘around 5%’, demonstrating economic resilience in the face of challenges. However, the National Bureau of Statistics cautioned that the foundations for economic stability ‘are not yet solid’. The data and comments reveal a nuanced narrative of resilience and challenge.

While growth appears to be driven by exports and capital expenditure for new energy, any prospect of increased stimulus seems improbable as growth remains aligned with official targets. Industrial production saw a notable increase of 6.1% in Q1 2024, yet industrial producer prices fell by 2.7%, indicating ongoing deflationary pressures on the manufacturing sector. Retail sales experienced growth of 4.7% for the quarter, although March witnessed a slowdown to 3.1% from February’s 5.5%.

The sluggish growth in first-quarter retail sales, coupled with a significant 9.5% decline in property investment, underscores the challenges confronting China’s economy. Furthermore, the sharp decline in new home prices, combined with recent legal actions against major property developers, highlights the severity of the ongoing real estate crisis. As China navigates these economic complexities, policymakers face the imperative of striking a delicate balance between sustaining growth and addressing systemic vulnerabilities amidst evolving domestic and global economic dynamics.”

UK inflation reaches pre-Ukraine conflict levels

“UK inflation has declined to 3.2% in March, driven by falling energy prices. This figure marks the lowest level for inflation in the UK since September 2021, pre-Russia’s invasion of Ukraine and offers further hope that the UK will drop back to its 2% target in the second half of 2024. This data also indicates that the UK is beginning to rein in inflation at a quicker pace than the US, highlighting a divergence between the two countries and prompting suggestions that the Bank of England maybe in a position to start cutting interest rates sooner than the US Federal Reserve.

“While investors have started to increase bets that the UK central bank could be one of the early movers in cutting interest rates, officials continue to urge caution, pointing out that underlying issues and emerging geopolitical tensions may fuel further inflationary pressure.

“Officials and policymakers alike will also, however, be keeping an increasingly close eye on unemployment figures, which increased to 4.2% in the quarter through February, up from 3.9% in the previous period. This suggests that while inflation continues to fall, interest rates continue to impact households and companies.”

Richard Flax: Richard is the Chief Investment Officer at Moneyfarm. He joined the company in 2016. He is responsible for all aspects of portfolio management and portfolio construction. Prior to joining Moneyfarm, Richard worked in London as an equity analyst and portfolio manager at PIMCO and Goldman Sachs Asset Management, and as a fixed-income analyst at Fleming Asset Management. Richard began his career in finance in the mid-1990s in the global economics team at Morgan Stanley in New York. He has a BA from Cambridge University in History, an MA from Johns Hopkins University in International Relations and Economics, and an MBA from Columbia University Graduate School of Business. He is a CFA charterholder.