June 15, 2023 (MLN): China's economy stumbled in May with industrial output and retail sales growth missing forecasts, adding to expectations that Beijing will need to do more to shore up a shaky post-pandemic recovery, as Reuters reported.

The economic rebound seen earlier this year has lost momentum in the second quarter, prompting China's central bank this week to cut some key interest rates, with expectations of more to come.

Industrial output grew 3.5% in May from a year earlier, the National Bureau of Statistics (NBS) said on Thursday, slower than the 5.6% expansion in April.

Moreover, Retail sales, a key gauge of consumer confidence rose 12.7%, missing forecasts of 13.6% growth and slowing from April's 18.4%.

Zhiwei Zhang, president of Pinpoint Asset Management stated, "All the data points so far sent consistent signals that the economic momentum is weakening."

Data ranging from factory surveys and trade to loan growth and home sales have shown signs of weakness for the world's second-biggest economy.

Crude steel output extended both year-on-year and month-on-month falls in May while daily coal output fell from April too, NBS figures showed.

The soft run of data has defied analyst expectations for a sharper pickup, given comparisons with last year's very weak performance when many cities were under strict COVID lockdowns.

The figures also reinforce the case for more stimulus as policymakers face deflationary risks, mounting local government debts, record youth unemployment and weakening global demand.

"Insufficient domestic demand and sluggish external demand could interrupt the momentum in the ongoing months, leaving China with a more gradual U-shape recovery trajectory on its month-on-month growth path," said Bruce Pang, chief economist at Jones Lang LaSalle.

China's central bank on Thursday cut the interest rate on its one-year medium-term lending facility, the first such easing in 10 months, paving the way for cuts in the benchmark loan prime rates (LPR) next week.

China's stock markets rose after the rates cut, with the benchmark CSI 300 gaining 0.6% in early trade, while Hong Kong's Hang Seng Index climbed 1.2%. The yuan hit a fresh six-month low.

Markets are also betting on more stimulus, including measures targeting the floundering property sector, once a key driver of growth.

Julian Evans-Pritchard, head of China at Capital Economics, said while the central bank's easing won't make much difference on its own, it reveals "growing concerns among officials about the health of China's recovery."

He added the second quarter is shaping up to be weaker than he had anticipated and further policy support is probably needed to prevent the economy from entering a renewed downturn.

NBS spokesperson Fu Linghui told a press briefing second quarter growth was expected to pick up due to last year's low base effect.

However, he warned the recovery faces challenges including "a complicated and grim international environment, sluggish global economic recovery" and well as "insufficient domestic demand".

Yi Gang, PBOC governor, pledged last week that China will make counter-cyclical policy adjustments to shore up the economy.

Property investment in May fell at the fastest pace since at least 2001, down 21.5% year-on-year, while new home price growth slowed.

The property sector, historically a major driver of China's economic growth, is expected to grapple with "persistent weakness" for years, Goldman Sachs analysts said this week.

Private fixed-asset investment shrank 0.1% in the first five months, a sharp contrast to the 8.4% growth in investment by state entities, suggesting weak business confidence.

Labour market pains continued with youth unemployment jumping to a record 20.8%. The nationwide survey-based jobless rate stayed at 5.2% in May.

Despite slowing growth, policymakers in Beijing have been cautious about extending more aggressive stimulus while other global central banks raise interest rates to combat inflation, which could risk further capital outflows.

The country's biggest banks recently cut their deposit rates to ease pressure on profit margins and encourage savers to spend more.

Copyright Mettis Link News 

Posted on: 2023-06-15T10:14:29+05:00