Westpac MNI China CSI Improves In December - Rate Cut Boosts Expected Business Conditions; Real Estate Attitudes Firm

Chinese consumer sentiment improved in December, bouncing back further from the three year low seen in October as consumers were increasingly optimistic about the outlook for business conditions and confidence in the real estate market edged higher.
 
The Westpac MNI China Consumer Sentiment Indicator increased 1.3% on the month to 112.5 in December from 111.0 in November. Although the monthly improvement is to be welcomed, it was the first meaningful increase since July. Consumer confidence remains subdued with sentiment down by 10% in 2014.
 
Three of the five components that make up the Westpac MNI China CSI increased between November and December, although all components have weakened over the second half of 2014.
 
Consumers were most enthusiastic about the outlook for business, with both Business Conditions in One Year and Business Conditions in Five Years increasing notably in December. There was also some improvement in household finances with respondents reporting a better current financial situation, while expectations for their future financial situation remained unchanged, with rising inflation expectations no doubt influencing that.
 
Durable Buying Conditions was the only component of the Westpac MNI China CSI that decreased, hitting a series low for the second time in three months in December.  However, spending plans for discretionary services such as dining out and entertainment lifted in the month, indicating that while big ticket durable items are not on the menu at present, smaller scale outlays remain resilient.
 
Consumers’ attitude towards real estate showed further signs of improvement in December, building on the favourable directional shifts across a range of measures observed in November. Expectations for house prices rose for a second straight month; the share of respondents reporting it was a ‘good time to buy a house’ rose again, while 16.8% of consumers now nominate domestic real estate as the ‘wisest place for their savings’, up from the low of 13.8% in September. The more optimistic appraisal of the housing market contained in the combined Nov-Dec surveys is an extremely welcome development, as it indicates that the September 30 policy support package, in tandem with interest rate cuts, are beginning to gain some traction.
 
Commenting on the data, MNI Indicators Chief Economist Philip Uglow said, “The improvement in sentiment over the past two months provides some hope that the worst could be behind us. Sentiment remains relatively weak though, which cautions against being overly optimistic.”
 
Westpac’s Senior International Economist Huw McKay commented that “There are now clear signs that the dominant themes for much of 2014 - pronounced pessimism regarding the housing and labour markets - are shifting in a more favourable direction as consumers look ahead to 2015. Within the generally positive trend in the December survey details, it is notable that forward looking indicators on the economy improved more so than the coincident ones. That sort of relative performance has been historically associated with turning points in growth. Consumers seem to have responded positively to the reduced degree of ambiguity regarding the policy stance, with the combination of housing support and interest rate cuts materially reducing uncertainty on this front.”