China’s economy slowed unexpectedly in July as factory and retail activity were squeezed by Beijing’s zero-Covid policy and a real estate crisiswhile the central bank surprised the markets by lowering key rates to stimulate demand.
Industrial production in July rose 3.8% from a year earlier, down slightly from 3.9% in June, according to data from the National Bureau of Statistics (NBS). This compared to a 4.6% increase expected by analysts in a Reuters poll.
Retail sales, which only turned positive in June, rose 2.7% from a year ago, largely missing analysts’ forecast for 5% growth and below 3% growth. .1% observed in June.
The world’s second-largest economy narrowly escaped a contraction in the June quarter, hampered by the containment of the commercial hub of Shanghaian increasingly pronounced slowdown in the real estate market and still weak consumer spending.
However, risks to growth abound as many Chinese cities, including manufacturing hubs and popular tourist spots, have imposed containment measures in July after new outbreaks of the more transmissible Omicron variant were discovered.
“The risk of stagflation in the global economy is increasing and the foundations for national economic recovery are not yet solid,” the BES warned in a statement.
The real estate sector, which has been more rocked by a mortgage boycott which weighed on the morale of buyers, deteriorated in July. Property investment fell 12.3% in July, the fastest pace of the year, while the decline in new sales steepened to 28.9%.
Chinese policymakers are trying to balance a fragile recovery and stamp out emerging Covid clusters, with the economy set to miss its official growth target this year – set at around 5.5% – for the first time since 2015.
“All economic data disappointed in July, with the exception of exports. Real economy loan demand remained weak, suggesting a cautious outlook for the coming months,” said Nie Wen, Shanghai-based economist at Hwabao Trust, adding that the Covid outbreaks and July heat waves weighed on activity.
“Now it looks increasingly difficult to achieve even the 5-5.5% growth in the second half.”
The employment situation remained fragile. The national survey-based unemployment rate fell slightly to 5.4% in July from 5.5% in June, although youth unemployment remained stubbornly high, hitting a record high of 19.9% in July.
For support growth, the central bank on Monday unexpectedly lowered interest rates on major lending facilities for the second time this year. New yuan lending fell more than expected in July as businesses and consumers remained cautious about leverage, data showed on Friday.
Wang Jun, an economist at Zhongyuan Bank, thinks authorities will focus on implementing existing policies, rather than rolling out aggressive new stimulus.
“We are now facing a typical liquidity trap problem. No matter how weak the credit supply, businesses and consumers are cautious about taking on more debt,” Wang said. “Some of them even repay their debt early. This could herald a recession.
Investment in fixed assets, which Beijing hoped would boost growth in the second half as exports slowed, rose 5.7% in the first seven months of the year from the same period a year earlier. early, versus a projected 6.2% rise and a 6.1% fall jump in January-June.