The Li Keqiang Index points to a weaker start in the economy – Our augmented index hit a new low since the data history. The drop was largely due to the collapse of railway cargo growth, from -9% yoy in Jan to -26.8% yoy in Feb, or -17.2% yoy in Jan-Feb. Both were the weakest readings in history. Meanwhile, power consumption growth also slowed to 2.5% yoy in Jan-Feb, the second slowest growth since May 2009 (the slowest was -1.5% yoy in Aug 2014). The index move is in line with our expectation that the correction of the property sector together with its long production chain may create a flat tail risk mostly in the first half this year. We thus continue to expect the growth may trough at 6.7% yoy in 1Q this year assuming 1) further policy easing (2 more rate cuts and 2-3 more RRR cuts for 2015) and 2) positive feedback of the oil dividend.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
