BEIJING (Reuters) – China’s economy stumbled in May, data showed on Thursday, with industrial output and retail sales growth both missing forecasts, adding to expectations that Beijing will have to quickly ramp up stimulus to shore up a shaky pandemic recovery.
A first-quarter economic rebound has lost momentum in the second quarter, prompting China’s central bank this week to cut some key interest rates, with expectations of more to come.
Industrial output grew 3.5% in May from a year earlier, the National Bureau of Statistics said, slower than the 5.6% expansion in April and slightly below a 3.6% increase expected by analysts in a Reuters poll, as manufacturers struggle with weak demand both at home and abroad.
Retail sales – a key gauge of consumer confidence – rose 12.7%, missing forecasts of 13.6% growth and slowing from April’s 18.4%.
Analysts have cautioned that China’s data readings last month, especially retail sales, may be highly distorted by comparisons with a very weak performance last year, when many cities were under stringent COVID lockdowns.
But data ranging from factory surveys and trade to loan growth and home sales have shown signs of weakness for the world’s second-biggest economy.
It also reinforces the case for more stimulus as policymakers face deflationary risks, mounting local government debts, record youth unemployment and weakening global demand.
China’s central bank on Thursday cut the interest rate on its one-year medium-term lending facility rate as expected, the first time in 10 months, which could pave the way for cuts in the country’s benchmark lending loan prime rates (LPR) next Tuesday. Markets are also betting on more stimulus, including measures targeting the floundering property sector, once a key driver of growth.
Yi Gang, the governor of the bank, pledged last week that China will step up counter-cyclical policy adjustments to shore up the economy.
Investment in the property sector fell 7.2% in January-May from the same period a year earlier, after declining 6.2% in January-April.
The sector is expected to grapple with “persistent weakness” for years, dragging on economic growth, Goldman Sachs analysts said this week.
Broad fixed asset investment expanded 4.0% in the first five months of 2023 year-on-year, versus expectations for a 4.4% rise and a 4.7% expansion in January-April.
The labour market remained weak amid broad-based economic fragility. The nationwide survey-based jobless rate remained at 5.2% in May. Youth unemployment jumped to 20.8%, a new record high.
Despite slowing growth, policymakers in Beijing have been cautious about extending more aggressive stimulus while other global central banks raise interest rates to combat inflation, which could risk further capital outflows.
The country’s biggest banks recently cut their deposit rates to ease pressure on profit margins and encourage savers to spend again.
(Reporting by Albee Zhang, Ellen Zhang and Kevin Yao; Editing by Sam Holmes)
