China’s economy slows in May, confirming further support

  • May data points to economic slowdown
  • Industrial production, retail sales growth misses expectations
  • The youth unemployment rate has reached an all-time high
  • Property investment slump deepens
  • PBOC cuts key rates to revive demand

BEIJING, June 15 (Reuters) – China’s economy faltered in May as it missed forecasts for industrial production and retail sales growth, adding to expectations that Beijing must do more to boost its post-pandemic recovery.

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

Industrial production 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 and slightly below the 3.6% increase expected by analysts in a Reuters poll. With low demand both domestically and abroad.

Retail sales – a key measure of consumer confidence – rose 12.7%, missing forecasts for a 13.6% rise and down from 18.4% in April.

“All data points have sent consistent signals that economic momentum is weakening,” said Shiwei Zhang, head of Pinpoint Asset Management.

Data from factory surveys and trade to credit growth and home sales show signs of weakness in the world’s second-largest economy. Crude steel production fell year-on-year and month-on-month in May, while daily coal production fell from April, NBS data showed.

The smooth flow of data has defied analyst expectations for a sharp pick-up, compared with a much weaker performance last year when many cities were under strict Covid lockdowns.

The figures strengthen the case for further stimulus as China faces deflationary risks, mounting local government debt, record youth unemployment and weakening global demand.

“Sufficient domestic demand and sluggish external demand may interrupt momentum in current months, causing China’s monthly growth path to gradually enter a U-shaped recovery path,” said Bruce Pang, chief economist at Jones Lang LaSalle.

Bong said the first step would be to introduce stimulus along with a large-scale policy easing. “But a slow economic recovery may require two to three years.”

Reuters Graphics

Central Bank Easing

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

The yuan hit a fresh six-month low after the rate cut and China’s stock markets rose, with the benchmark CSI 300 up 0.6% and Hong Kong’s Hang Seng index up 1.2%.

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

While policymakers in Beijing have been wary of using aggressive stimulus that could raise capital flight risks, analysts say further easing is needed.

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

Julian Evans-Pritchard, China head of Capital Economics, said central bank easing would not make a difference on its own, adding that it reflected “growing concerns among officials about the health of China’s recovery”.

He said the second quarter was weaker than he had expected and that more policy support was needed to prevent the economy from entering a renewed recession.

NBS spokesperson Fu Linghui told a press conference that second-quarter growth is expected to pick up due to last year’s lower base effect.

However, he warned that the recovery would face challenges including a “complicated and tough international environment, sluggish global economic recovery” and “insufficient domestic demand”.

Yi Gang, the PBOC governor, promised last week that China would Counter-cyclical policy adjustment To boost the economy.

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

The property sector, historically a key driver of China’s economic growth, is expected to struggle with “continued weakness” for several years, Goldman Sachs analysts said this week.

Private fixed asset investment shrank 0.1% in the first five months, in contrast to 8.4% growth in investment by state-owned enterprises, indicating weak business confidence.

Labor market pains Youth unemployment rises to 20.8%. The nationwide survey-based unemployment rate was 5.2% in May.

Reuters Graphics

Additional reporting by Albee Zhang; Editing by Sam Holmes

Our Standards: Thomson Reuters Trust Principles.

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