DeepDive: Nascent Signs of an Improving Outlook in the PBoC’s Messaging

In our latest DeepDive, we analyse the PBoC’s Q4 monetary policy report and macroeconomic outlook. Our text-based macro and growth support indicators have begun to show early signs of improvement in the macro outlook, which makes us more cautiously optimistic from a cyclical perspective than we were last year.    

Our text-based PBoC Macro Composite Indicator (MaCI) remained near its long-term average when applied to the central bank’s outlook in its latest monetary policy report (see chart). Historically, a lower MaCI has tended to indicate improving macroeconomic conditions and a brightening outlook for a range of asset classes (see New Set of Text-Based Macro Indicators for an introduction of the indicators).

What is more striking, however, is the sharp drop in our growth support indicator in Q4 (see chart). The index has historically tracked the MaCI closely, but sharply diverged from it in recent quarters (see QuickScan: The PBOC’s Optimistic Outlook for more details on our growth support indicator). The logic behind the relation between the two indicators is that a drop in references to risk and worsening economic conditions (MaCI falls) should, by and large, co-occur with a decrease in language signalling support for the economy (support indicator decreases). The divergence, coupled with a range of conventional numerical macro data, led us to adopt a skeptical macro outlook throughout last year.