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China factory output, consumption highlight frail post-Covid economic recovery

BEIJING – China’s industrial output and retail sales growth in April undershot forecasts, suggesting the economy lost further momentum at the start of the second quarter and adding pressure on policymakers to shore up a wobbly post-Covid recovery.

Tuesday’s batch of data, which also showed a decline in property market investment, does little to allay concerns about the outlook for the world’s second-biggest economy as both its domestic and export engines of growth remain underpowered.

Industrial output grew 5.6 per cent in April from a year earlier, accelerating from the 3.9 per cent pace seen in March, data released by the National Bureau of Statistics (NBS) showed. It was well below expectations for a 10.9 per cent increase in a Reuters poll of analysts although it marked the quickest growth rate since September 2022.

Retail sales jumped 18.4 per cent, speeding up sharply from a 10.6 per cent increase in March for their fastest increase since March 2021. But analysts had expected retail sales to surge 21 per cent.

The year-on-year figures were heavily skewed by declines last April when the financial hub of Shanghai and other major cities were under stringent anti-virus lockdowns and curbs, which severely impacted growth in the Asian giant in 2022.

“Today’s weaker-than-expected data show how difficult it is to keep the growth engine running after restarting it,” said Bruce Pang, chief economist at Jones Lang Lasalle.

“China will continue to deliver strong year-on-year growth of activity data in the second quarter on the back of a low base, but at a slower quarter-to-quarter pace than the first quarter as the recovery is losing steam.”

Indeed, other data over the past week showing shrinking imports in April, deepening factory gate deflation and worse-than-expected bank loans signalled weak domestic demand, raising pressures on policymakers to shore up the economic recovery as global growth falters.

China’s central bank kept the interest rate unchanged on Monday as expected, but markets are betting on more monetary easing in the coming months.

High youth unemployment

On top of fragile domestic and global demand conditions, Chinese policymakers have to contend with headwinds from recent Western bank failures, high global borrowing costs and the Ukraine war. High domestic debt and a still-shaky property market also remain concerns.

The data also showed fixed asset investment expanded 4.7 per cent in the first four months of 2023 from the same period a year earlier, versus expectations for a 5.5 per cent rise. It grew 5.1 per cent in the January-March period.

Investment in the property sector, a key pillar of the economy, tumbled 16.2 per cent year-on-year last month after a 7.2 per cent drop in March, according to Reuters’ calculations based on official data, as investors remain cautious due to still-fragile demand.

Hiring was still low among companies wary about their finances. The nationwide survey-based jobless rate stayed at 5.2 per cent in April, down slightly from 5.3 per cent in March.

But the youth jobless rate hit a record high at 20.4 per cent, up from 19.6 per cent in March, which Zhang Zhiwei, chief economist at Pinpoint Asset Management, described as a “worrying sign.”

“Some researchers in the market have been calling for more policy measures such as consumption coupons to boost domestic demand, but the government seems reluctant to do so. The growth target for this year is set at a low level, which leaves room for the government to wait and see.”

China has set a modest growth target of about 5 per cent in 2023, after badly missing last year’s goal. REUTERS