BEIJING—China’s economy stumbled in May with industrial output and retail sales growth missing forecasts.
The economic rebound seen earlier this year has lost momentum in the second quarter, prompting China’s central bank to cut some key interest rates this week for the first time in nearly a year, with expectations of more to come.
“The post-COVID recovery appears to have run its course, an economic double dip is nearly confirmed, and we now see significant downside risks to our below-consensus GDP growth forecasts of 5.5 percent and 4.2 percent for 2023 and 2024, respectively,” analysts at Nomura said in a research note after the latest disappointing data.
Industrial output grew 3.5 percent in May from a year earlier, the National Bureau of Statistics (NBS) said on Thursday, slowing from the 5.6 percent expansion in April and slightly below a 3.6 percent increase expected by analysts in a Reuters poll, as manufacturers struggle with weak demand at home and abroad.
Retail sales—a key gauge of consumer confidence—rose 12.7 percent, missing forecasts of 13.6 percent growth and slowing from April’s 18.4 percent.
“All the data points so far sent consistent signals that the economic momentum is weakening,” said Zhiwei Zhang, president of Pinpoint Asset Management.
Data ranging from factory surveys and trade to loan growth and home sales have shown signs of weakness in 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 analysts’ expectations for a sharper pickup, given comparisons with last year’s very weak performance, when many cities were under strict COVID-19 lockdowns.
“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.
Following the downbeat data, JP Morgan trimmed its forecast for China’s 2023 full-year gross domestic product (GDP) growth to 5.5 percent from 5.9 percent.
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. The move was expected after it trimmed some short-term rates earlier in the week.
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, 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.”
NBS spokesperson Fu Linghui told a press briefing that 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.”
Property investment in May fell at the fastest pace since at least 2001, down 21.5 percent year-on-year, while new home price growth slowed.
The property sector, historically a major driver of China’s economic activity, is expected to grapple with “persistent weakness” for years, Goldman Sachs analysts said this week.
Private fixed-asset investment shrank 0.1 percent in the first five months, a sharp contrast to the 8.4 percent growth in investment by state entities, suggesting weak business confidence.
Labor market pains continued with youth unemployment jumping to a record 20.8 percent. The nationwide survey-based jobless rate stayed at 5.2 percent in May.
Strikes at Chinese factories have surged to a seven-year high and are expected to become more frequent as weak global demand forces exporters to cut workers’ pay and shut down plants, one rights group and economists said, further hurting consumer and business confidence.
