Westpac MNI China Consumer Sentiment Indicator Lowest Since October 2015 - Confidence At Four Month Low Despite Festival Period

Following three consecutive monthly increases, the Westpac MNI China Consumer Sentiment Indicator fell back to the lowest level since October, as household finances and the outlook for spending deteriorated.
 
Four of the five components that contribute to the Westpac MNI China CSI fell between January and February, resulting in a 3.1% drop in headline sentiment to 111.3 from 114.9 previously. Both current and expected measures of household finances pulled back, with the former declining to the lowest since May 2015, while Durable Buying Conditions fell to the lowest level in the survey’s nine year history. The outlook for business conditions was more mixed, but remained weak overall as a small pick-up in the year-ahead measure was outweighed by a 6.7% fall in the indicator assessing the prospects for business in five years’ time.
 
The Lunar New Year holiday appears to have done little to stem the negative tide in consumers’ view of overall conditions either, with the Current Indicator falling to the lowest in more than four years. It is now only just above the 100 breakeven level, indicating that there are now nearly as many pessimists as optimists.
 
Against the backdrop of weakening sentiment on household finances, there were also notable declines in spending measures that have a high correlation with official data on retail sales. Intended spending on entertainment, shopping and dining out all fell back to the lowest since October.
 
Sentiment towards the real estate market, which had been broadly recovering since mid-2014, also suffered a setback in February as price expectations declined and a larger majority of respondents thought it was a bad time to buy a house.
 
A sharp drop in Current Prices Satisfaction and a concurrent rise in Inflation Expectations suggests that consumers remain focused on the high level of food inflation when assessing the outlook. This is a negative for sentiment about the family budget, but should allay fears of a deflationary spiral.
 
Commenting on the latest survey, Chief Economist of MNI Indicators Philip Uglow said, “Following a string of broadly mixed results, February’s universal decline in consumer sentiment is unambiguous. Waning growth and ongoing questions about the ability of policymakers to manage the economy’s transition are manifesting themselves in lower confidence among ordinary Chinese. The relative strength in retail sales and consumer spending over the past year helped the economy avoid a sharper slowdown, but weakness in the current survey clouds the outlook for spending somewhat.”
 
Westpac Senior Economist Matthew Hassan said, “The setback to sentiment comes at a delicate time for the Chinese economy. With growth hitting a 7yr low in 2015 and key industry sectors still struggling, improving consumer confidence had been one of the few promising signs that domestic demand was regaining some traction. That is now less clearly the case. The February update points to continued weak conditions and elevated job-loss fears again weighing on the consumer mood. The softening in spending intentions is particularly disappointing heading into the Lunar New Year, but the uneven picture around real estate is also of concern. At this stage of the cycle, any loss of momentum for either consumer demand or the tentative recovery in housing raises the risk that growth stays weaker for longer.”