A leading indicator of China's economic activity rose at a faster pace in May, signaling a moderate rebound in growth in the coming quarters, despite severe global headwinds.
The Conference Board said Tuesday that its leading economic indicator (LEI) increased 1.1 percent month-on-month in May to 235.1. This followed a 0.9 percent increase in April and a 0.8 percent increase in March.
The uptick was driven by the rebound in bank loans and real estate activity, said Andrew Polk, Conference Board's resident economist in Beijing. "The economy will continue to face strong headwinds from the softness in both external and domestic demand, but the LEI signals a moderate growth rebound based on policy support," Polk said.
According to the economist, while exports remained subdued, bank credit picked up recently due to fiscal and monetary policy measures, which were designed to support growth and boost demand for loans.
The coincident economic index, which measures current economic activity, increased 0.8 percent to 219.2. This followed a 0.6 percent decline in April and a 0.6 percent increase in March.
Current economic conditions improved somewhat from April, but the rate of growth so far this year has been tepid, and both consumer and producer prices fell sharply in May, suggesting weak domestic demand, Polk said.
The LEI aggregates six economic indicators that measure economic activity in China. Five of the six components contributed positively to the index in May. For the coincident index, four of the five components contributed positively.
While acknowledging that the economy is currently facing "increasing downward pressure," China's State Council last month said it would accelerate the process of fine-tuning of its policies to achieve more stable growth. It also vowed to give more priority to maintaining growth momentum and boosting domestic demand.
The economy expanded 8.1 percent year-on-year in the first quarter of 2012, the weakest pace in nearly three years. Amid mounting concerns over slowing economic growth both at home and abroad, the People's Bank of China this month lowered its key interest rates, in the first such move since late 2008.
China has lowered the reserve requirement ratio in February and May to improve lending.
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