China in Recession?

Interview on CNN with LingLing Wei today, she doesn’t say “recession”, but the idea is there (“struggling, ‘big time’”I think is the phrase). Here’s a picture of industrial production ex.-construction through May, and ECRI’s recession dates (peak-to-trough):

Figure 1: Chinese industrial production ex-construction (black, left log scale). ECRI defined peak-to-trough recession dates shaded light blue. Source: OECD MEI via FRED, ECRI.

It’s clear industrial production growth has slowed (IP is shown on log scale, so a decreasing slope indicates slowing growth rate). Incipient deflation is suggestive of recession, or at least a slowdown (if one believes in a Phillips curve, although an expectations and input augmented Phillips curve indicates caution). Does this mean we’re in a recession in China? And who gets to decide what’s a recession in China? (See discussion by Frankel here.) Consider ECRI as compared to OECD’s indicator.

Figure 2: Recession dates (peak-to-trough) for China, from Economic Cycle Research Institute shaded blue (ECRI), top panel, from OECD shaded blue (bottom panel).  OECD series ends in 2022M09, denoted by red dashed line. Source: ECRI, OECD via FRED.

Clearly, there is little congruence of views on what defines a recession (for a listing of sources for recession calls across countries, see this post).

We’ll know a bit more in a few hours (10pm ET), as a bevy of data for Q2 is released, including GDP and industrial production, fixed assets, etc. Growth in GDP y/y consensus is 7.3% vs. 4.5% previous, which sounds pretty good, although consensus for q/q is 0.5% vs. 2.2% previous (not annualized). June industrial production y/y growth is at 2.7% consensus vs. 3.5% previous, retail sales 3.2% consensus vs. 12.7% previous.

What we already know is that consumer prices are flat, and producer prices are falling.

Figure 3: China CPI (black), core CPI (tan), and PPI (green), all in logs, 2019M12=0. ECRI defined peak-to-trough recession dates shaded pink. Source: Kose/Ohnsorge – World Bank and IMF, IFS, both updated using TradingEconomics; and author’s calculations.

deflation