April data in China shows that the economic recovery has lost steam, testing policymakers

  • Industrial output, consumption and real estate investment show that the economy is losing steam
  • Domestic and commercial growth drivers are still apace
  • Analysts say rising youth unemployment is ‘alarming’
  • The post-coronavirus economic struggle is prompting calls for more political easing

BEIJING (Reuters) – China’s April industrial production and retail sales growth fell short of expectations, suggesting the economy lost momentum at the start of the second quarter and intensifying pressure on policymakers to support a shaky post-COVID recovery.

The batch of data released on Tuesday, which also showed a further decline in real estate investment, adds to concerns about the outlook for the world’s second-largest economy as domestic growth drivers and exports remain weak.

Data from the National Bureau of Statistics showed that industrial output grew 5.6% in April from a year earlier, accelerating from the 3.9% pace recorded in March. It was well below expectations for a 10.9% increase in a Reuters poll of analysts although it represented the fastest rate of growth since September 2022.

Retail sales, a measure of consumption, jumped 18.4%, up sharply from a 10.6% increase in March for the largest increase since March 2021. Analysts had expected growth of 21.0%.

The year-on-year numbers were badly skewed by downturns last April when the financial hub of Shanghai and other major cities were under lockdowns and strict anti-virus restrictions, which severely affected growth in the Asian giant in 2022.

“Today’s weaker-than-expected data shows just how difficult it is for the growth engine to keep running after it’s restarted,” said Bruce Pang, chief economist at Jones Lang LaSalle.

Nomura’s economists took a more muted view: “As disappointment sets in, we see downside risks rising, leading to weaker activity data, higher unemployment, persistent inflation, lower market interest rates, and a weaker currency.”

“YoY growth in the second quarter may appear high thanks to a low base, but sequential growth may see a material decline,” they said.

Policy support

In fact, other data over the past week showed imports contracting in April, and a worse-than-expected factory gate contraction and bank loans deepened, weakening domestic demand, adding pressure on policymakers to support the economic recovery as global growth falters.

China’s central bank kept interest rates unchanged on Monday as expected, but markets are betting on more monetary easing in the coming months as commodity data also highlighted pockets of weakness in the economy.

The country’s average daily coal production, aluminum production and crude steel production decreased in April compared to the previous month.

Zhu Hao, an economist at Guotai Junan International, expects the central bank to cut interest rates “as deflationary pressure continues.”

China’s cabinet in late April unveiled plans to boost employment and trade as the government tries to hit a modest growth target of around 5% in 2023, after mischaracterizing last year’s target.

Out sweet spot

The offshore Chinese Yuan weakened towards a two-month low while the Australian dollar turned from a small early gain to a loss after the disappointing data.

On top of broad demand problems, Chinese policymakers have to contend with headwinds from recent Western bank failures, rising global borrowing costs, rising domestic debt, and the Ukraine war.

The data also showed that investment in fixed assets grew by 4.7% in the first four months of 2023 on an annual basis, slowing from the pace of 5.1% in the January-March period.

Private investment in fixed assets rose just 0.4%, a sharp contrast to the 9.4% jump in investment by state entities, indicating weak business confidence.

Investment in the real estate sector, a mainstay of the economy, fell 16.2% year-on-year last month after falling 7.2% in March, according to Reuters calculations based on official data, as investors remain wary of the continuing fragility of the situation. Requests.

Reuters graphics

Employment was still low among companies worried about their finances. The youth unemployment rate hit a record 20.4%, up from 19.6% in March, which Zhiwei Zhang, chief economist at Pinpoint Asset Management, called a “worrying sign”.

“With China now out of reopening territory, hope for a further repair of sentiment may dwindle in the absence of decisive government action,” Citi economists said in a note.

“We believe that policymakers need to move from a wait-and-see mode to a proactive easing and we expect to cut the policy rate by 20 basis points in the remainder of the year.”

($1 = 6.9121 CNY)

(Covering) By Ellen Zhang, Joe Cash, Albie Zhang and Kevin Yao Editing by Shri Navaratnam

Our Standards: The Thomson Reuters Trust Principles.

Joe Cash

Thomson Reuters

Joe Cash reports on China’s economic affairs, covering domestic fiscal and monetary policy, key economic indicators, trade relations, and China’s growing engagement with developing countries. Prior to joining Reuters, he worked on UK and EU trade policy across the Asia Pacific region. Gu studied Chinese at Oxford University and speaks Mandarin.

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