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Recently disclosed economic data, so that the market is expected to ripple. Talk about the so-called "stagflation" in the fourth quarter of the constraints of counter-cyclical policy, talk about some economic data improvement makes further monetary policy easing unnecessary.

The author believes that there is some room for discussion in these judgments, and we still need to pay attention to some contradictions contained in the current economic situation: first, the structural contradiction between formal inflation and real deflationary pressure, and the impact of this contradiction on policy; second, the contradiction between some improvement of economic data and the counter-cyclical bottoming policy care required for subsequent economic stabilization. Whether we can correctly understand and properly handle the relevant contradictions has become the key to the subsequent economic operation and the formation of market expectations.

Macroeconomic policy to maintain the bottoming situation

First of all, by observing the structural contradictions of inflation, the author believes that the current relatively high inflation is only in form rather than in substance. September CPI continued to rise, the main driving force or meat prices. On the one hand, the year-on-year increase in pork prices continued to expand; on the other hand, the price increases of beef and mutton, poultry, and eggs all increased. Against this backdrop, it is not surprising that CPI climbed to 3.0 per cent year-on-year in September, up from 2.8 per cent in August.

According to the author's prediction, in the fourth quarter, under the influence of meat price trend and base effect, CPI may still run at about 3% year-on-year. Does this mean that inflation is beginning to move towards a high level? We should further observe the structural changes in its composition, and the higher position in form does not mean that inflation is actually high.

There are two main reasons. First, the inflation level of about 3% can only be regarded as the relatively high level of the operating range in recent years rather than the absolute high level in history. Under the condition that the demand situation is generally weak and the monetary growth rate is generally limited by nominal economic growth, the year-on-year CPI level of 3% should not be called the so-called "high inflation"; second, in terms of non-food, core CPI (excluding food and energy prices) and service price levels, the three calibers were 1.0 per cent (lower than the previous month), 1.5 per cent (unchanged from the previous month) and 1.3 per cent (lower than the previous month), respectively. If you consider that the PPI is still in the deflationary range year-on-year, it is even harder to say that we are facing a high inflation environment.

At the same time, it should be noted that the real high inflation faced by China's economic evolution in history is generally driven by demand, which is reflected in the sharp rise of PPI and CPI year-on-year. At the same time, the monetary growth rate is also high growth. Behind it is the strong demand driven economic growth created by the economic growth model of high investment and high monetary credit, The leader is the strong growth of real estate and infrastructure investment. Obviously, the current macroeconomic situation is far from this, so I describe the current situation as a contradiction between formal inflation and real deflationary pressures.

In the face of the structural contradiction of inflation, the author believes that macro policy should pay more attention to the weak logic of demand behind the contradiction, rather than formal inflation (CPI shock caused by pork price and other factors), which should be solved by means of increasing supply.

At present, the pattern of gradual slowdown in economic growth is obvious. Industrial production in the equipment and automobile manufacturing production continued to be depressed, affected by the deflation of industrial prices, although corporate earnings have been repaired but has not yet ended the pressure situation, the inventory cycle bottomed out will take time. The downward pressure on the growth rate of traditional manufacturing investment on the demand side continues. Under the downward pressure of the economy, consumption, although resilient, is expected to continue to be under long-term pressure from disposable income growth and residential sector debt, and it is difficult to say that it will improve significantly in the short term. At present, there is not enough evidence to judge that the inventory cycle has entered a passive destocking (economic bottoming recovery) phase. The strength of economic demand is the determining factor behind the inventory cycle, and the overall logic of the current weak demand has not fundamentally changed, and the downward pressure on the economy is expected to continue in the fourth quarter. Stabilizing growth and promoting reform will still be the focus of economic work. In the short term, the pressure of stable growth is relatively prominent. Active fiscal policy and prudent and loose monetary policy are still necessary to support economic growth and promote the establishment of positive expectations.

Economic stabilization still needs easing policy care

Although some economic data at the end of the third quarter showed some improvement, such as the scale of new social financing and the scale of new credit in September, in addition to seasonal factors at the end of the quarter, the improvement of the policy-guided financing environment was also an important reason for the significant growth of new social financing and new credit in September. From this year's social finance interpretation rhythm, the first quarter of social finance hit a historical day, April social finance data to the historical average level, May social finance reached a historical high level, June social finance continued to record highs, July social finance slightly higher than the season year-on-year, August and September social finance continued to record highs.

Under such a rhythm, what I have observed is the continuation of downward pressure on the economy since the beginning of this year, as well as the unsatisfactory structure of social finance. This is mainly due to weaker medium-and long-term financing to support the expansion of the real economy, which, despite the improvement in the current period, remains to be sustained by policy and the repair of the logic of economic demand. Therefore, the author tends to believe that money and credit is no longer a "quick-acting heart-saving pill" to boost the economy ". Under the weak demand logic mentioned in the aforementioned analysis, in order to achieve the goal of maintaining the smooth operation of the economy, the monetary and financial environment needs to maintain a loose trend, precisely because the economic stimulus effect of monetary instruments has been marginal diminishing, so it is all the more necessary to maintain a certain loose financing environment to support economic growth.

If counter-cyclical policies are swayed or worried by factors such as the aforementioned form of inflation, which in turn affects the strength and pace of policy, then the improvement in financial/social finance in the third quarter will be difficult to directly deduce the conclusion that the economy is about to bottom out. As a result, there is a contradiction between the improvement in financial/social finance data and the easing of policy care needed to stabilize the economy in the future. If policy easing is tightened by improved data, the consequences will not be optimistic. Although this assumption is unlikely to become a reality, it is objective, especially if you take into account the increase in formal inflation and macro leverage.

From the perspective of fixed asset investment, the logic of weak demand is more prominent. From January to September, the national fixed asset investment (excluding farmers) was 46120.4 billion billion yuan, an increase of 5.4 percent over the same period last year, and the growth rate was 0.1 percentage points lower than that in January-August. Among them, the growth rate of the secondary industry fell by 0.1 percentage points, and the growth rate of the tertiary industry fell by 0.1 percentage points. In the first three quarters, manufacturing investment continued to be under pressure (cumulative year-on-year growth of 2.5 per cent remained low); infrastructure investment was moderately difficult to recover strongly (cumulative year-on-year growth of 4.5 per cent, up slightly); and real estate investment grew 10.5 per cent year-on-year, flat.

What needs attention is that the proportion of real estate development in fixed asset investment has reached the highest level in the past 10 years. Since June, it has significantly exceeded the seasonality, indicating that the current contribution of real estate investment to fixed asset investment is particularly significant, mainly due to the passive prominence of the weakness of manufacturing and infrastructure investment. Overall, manufacturing investment continues to be weak, infrastructure by local government investment and financing contradictions are tepid, while real estate in general is difficult to avoid the suppression of the policy environment, fixed asset investment shows that the weak demand logic is difficult to fundamentally change in the short term. Therefore, it is not difficult to understand the continued deflationary pressure on industrial prices and the continued pressure on the inventory cycle, and it will take time for the economy to bottom out.

The contribution of consumption to economic growth is still difficult to expect too much. From January to September, the total retail sales of social consumer goods was 29667.4 billion yuan, up 8.2 percent year on year. Among them, the retail sales of consumer goods per unit above the limit increased by 4.1, and the growth rate of limited consumer goods was lower than the growth rate of overall consumption. Overall, against the backdrop of continued downward pressure on the economy, consumption remains difficult to achieve strong growth in the short term due to slower growth in disposable income and pressure on residential sector debt.

Steady growth to promote reform is conducive to expected improvement

The current economic operation is continuing to grind to the bottom, but the steady growth and reform initiatives will be conducive to the expected improvement and risk appetite boost, economic operation and risk asset price performance will therefore get some positive support, safe-haven assets to risk asset performance repair process is expected to continue.

The potential risks that I am concerned about are mainly due to the short-term easing of external pressures, some positive effects of previous policies and the continued focus on controlling macro leverage, which will prolong the process of economic bottoming.

Therefore, while firmly implementing the counter-cyclical adjustment policy, we must deepen the reform, accelerate the modernization of the national governance system and governance capacity, further establish a market-oriented factor resource allocation system, improve the efficiency of factor resource supply, promote the improvement of total factor productivity, and further stimulate the growth potential. We must be firmly determined to reform the financial resource supply model, establish a financial resource allocation system based on the rule of law and credit, and a modern multi-level capital market as the core, so that the market can play a decisive role in resource allocation.

(Source: China Securities Journal-China Securities Network)