China’s economic recovery disappointing as consumer comeback remains elusive

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BEIJING (Reuters) – China’s retail sales fell in July, disappointing expectations of a modest increase as consumers in the world’s second-largest economy failed to shake off their mistrust in the regarding the coronavirus, while the recovery of the factory sector struggled to accelerate.

FILE PHOTO: People wear face masks when seen at a shopping complex after an outbreak of coronavirus (COVID-19) in Beijing, China July 17, 2020. REUTERS / Thomas Peter

Asian markets retreated on Friday following the disappointing set of economic indicators, which raised concerns about the fragility of China’s emergence from the coronavirus.

China’s recovery gained momentum after the pandemic crippled huge swathes of the economy as pent-up demand, government stimulus packages and surprisingly resilient exports revived activity.

However, July data from the National Bureau of Statistics on Friday showed weaker-than-expected year-over-year industrial production growth and retail sales extending the declines for a seventh consecutive month. This was offset slightly by firmer real estate investment, which showed that the recent stimulus was supporting construction.

Some analysts have attributed the economy’s loss of momentum to torrential rains that have flooded southern China since June and several new COVID-19 outbreaks that have led to partial lockdowns.

“While there may be a slight rebound in some investment activity if the flooding eases in the coming months, we expect the sequential recovery momentum to weaken in the second half of the year,” said Nomura analysts in a note, citing factors such as the decline in pent-up demand, declined. chances of further political easing and rising tensions between the United States and China.

Industrial production rose 4.8% in July from a year earlier, in line with June’s growth, but less than the expected rise of 5.1%.

Retail sales fell 1.1% year on year, missing expectations of a 0.1% increase and following a 1.8% decline in June.

The decline in retail sales was widespread, with clothing, cosmetics, home appliances and furniture all deteriorating from June.

A major exception was auto sales, which jumped 12.3%, after falling 8.2% in June.

“Despite the decline in investment, consumption has remained low, highlighting the lasting economic shock of the coronavirus pandemic,” said Zhang Yi, chief economist at Zhonghai Shengrong Capital Management.

“Given that we are likely to see a resurgence of COVID in the fall and winter, it is not recommended that monetary policy be tightened too prematurely and that fiscal policy remain insufficient.”

The unemployment rate based on a July national survey in China remained high at 5.7%, as in June.

LUMINOUS INVESTMENT PLACEMENT

Investment, which was boosted by the rapid expansion of the real estate sector, however, helped the recovery, with analysts forecasting acceleration in infrastructure spending in the coming months thanks to government support.

China’s economy returned to growth in the second quarter after a deep recession earlier in the year, but unexpected weakness in domestic consumption dampened momentum.

Capital investment fell 1.6% in January-July compared to the same period last year, in line with expectations, but more slowly than a 3.1% drop in the first half.

Real estate investment in July grew at the fastest pace since April of last year, supported by strong construction activity and easier lending. New home prices rose at a slightly slower pace in July compared to the previous month.

Investment in infrastructure, a powerful engine of growth, fell 1.0% year-on-year, following a 2.7% decline in the first half.

“Once the floods are over, I believe that reconstruction work in the affected areas will boost capital investment and industrial production,” said Iris Pang, chief economist for Greater China at ING.

Another major risk is the increasingly strained relationship between the United States and China ahead of the November US presidential elections, which analysts say prompted Beijing to focus on country-led growth.

“The changes in US-China relations are certainly impacting China, as well as the United States,” statistics bureau spokesman Fu Linghui said at a press conference.

“We always hope to maintain equal and mutually beneficial development (in relationships).”

Additional reports by Colin Qian; Editing by Sam Holmes

Our standards:Thomson Reuters Trust Principles.

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