Chinese economy slows in May with industrial output, retail sales growth missing forecasts

BEIJING: 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.

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 per cent and 4.2 per cent for 2023 and 2024, respectively,” analysts at Nomura said in a research note after the latest disappointing data. Industrial output grew 3.5 per cent in May from a year earlier, the National Bureau of Statistics (NBS) said on Thursday, slowing from the 5.6 per cent expansion in April and slightly below a 3.6 per cent 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 per cent, missing forecasts of 13.6 per cent growth and slowing from April’s 18.4 per cent.

“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 lockdowns.

Analysts say the figures also reinforce the case that more stimulus is needed as China faces 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. Introducing stimulus with large-scale policy easing would be the first step, Pang said. “But it could need two to three years to shore up a slowing economic recovery.”

Following the downbeat data, JP Morgan trimmed its forecast for China’s 2023 full-year gross domestic product (GDP) growth to 5.5 per cent from 5.9 per cent. The government has set a modest GDP growth target of around 5 per cent for this year, after badly missing the 2022 goal.

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.