Lunar New Year blamed for underwhelming economic data

China’s most important festival is the main culprit behind the underwhelming economic indicators at the start of this year, according to the statistics authority.

The Lunar New Year – around which many factories and companies shut down – usually hurts industrial output in the four days ahead of it and 15 to 20 days after it, according to Mao Shengyong, spokesman of the National Bureau of Statistics. The festival was on Feb. 5 this year and thus the effect was concentrated in February, he said.

That compares with the later holiday in 2018, which caused the effect to spill over into March, he argued. Mao mentioned the LNY nearly 30 times during the hour-long briefing yesterday after the release of economic data for January and February.

None of the under-performing indicators are because the economy is in poor health, but are just seasonal blips, and both investment and consumption will probably improve, Mao said. “We shouldn’t pay too much attention to the short-term fluctuations of economic indicators.”

Economists at China International Capital Corp. developed their own econometric methods to exclude LNY effects and said both industrial production and retail sales growth were “largely stable” in the two months.

Others don’t agree with that assessment.

“While the official statement said the pace was 6.1 percent when ‘effects of the Chinese New Year holiday were excluded,’ it’s not clear what further adjustment was considered beyond the headline figure, which should have already ironed out volatility that occurs at the start of the year,” wrote Bloomberg economists Chang Shu and David Qu.

Lu Ting at Nomura International Plc argues the data point to a deepening slowdown rather than the calendar effect. In fact, the Jan.-Feb. data may have been flattered by the comparison with 2018, when stronger pollution control measures were in force.

“We expect Beijing to ramp up supportive policies in coming months and still believe deregulating the property markets in big cities is the key to unlocking a growth recovery,” Lu wrote. MDT/Bloomberg