China’s factory and retail sectors faltered last month, with output and sales growth hitting one-year lows as fresh COVID-19 outbreaks and supply disruptions threatened the country’s impressive economic recovery.
Industrial production rose 5.3 percent last month from a year earlier, narrowing from an increase of 6.4 percent in July and marking the weakest pace since July last year, data from the Chinese National Bureau of Statistics showed yesterday.
Output growth missed the 5.8 percent increase tipped by analysts.
Consumer spending also took a big hit from rising local COVID-19 cases and floods, with sales rising only 2.5 percent last month, much lower than the forecast 7 percent rise and the slowest clip since August last year.
“Economic growth slowed in August as consumption was hit by the lingering impact of earlier COVID outbreaks and investment remained weak,” Oxford Economics Asia economics head Louis Kuijs said. “Meanwhile, a new outbreak which started a few days ago in Fujian is posing downside risk to our forecast of a pick-up in growth in Q4 after a weak Q3.”
The world’s second-largest economy has made a remarkably strong revival from a COVID-19 slump last year, but momentum has slowed over the past few months due to supply chain bottlenecks, semiconductor shortages, curbs on high-polluting industries and a crackdown on property investment.
Looking ahead, analysts at Nomura expected the weakness to broadly extend into this month given the new wave of cases of the Delta variant of SARS-CoV-2 in Fujian Province and worsening conditions in the property market as authorities get tough on the sector.
In the industrial sector, production curbs hit output of aluminium and steel, while a drastic cut in fuel export quotas hurt China’s crude oil throughput.
Social restrictions due to the Delta variant in several provinces have hit the catering, transportation, accommodation and entertainment industries.
China’s services activity slumped into contraction last month, a private sector survey showed, as restrictions to curb COVID-19 once again closed shopping malls and many businesses in parts of the country.
KFC Corp operator Yum China Holdings Inc (百勝中國) on Tuesday said that its adjusted operating profit would take a 50 to 60 percent hit in the third quarter as the spread of the Delta variant in China closed restaurants and “sharply reduced sales.”
“As growth is approaching the lower end of the officially estimated potential growth range of 5.0-5.7 percent, Beijing may step up targeted easing to generate a moderate pick-up in growth in our view,” said Chen Jingyang, a greater China economist at HSBC.
“We expect the government to further speed up special bond issuance and the central bank to roll out more targeted easing measures, including targeted RRR [required rate of return] cuts, to support SMEs [small and medium-sized enterprises].”
Analysts also expect China to quicken spending on infrastructure projects later this year.
The weak data come amid growing worries in China’s property sector that could have a wider impact on the broader economy.
Particular focus is on Evergrande Group (恆大集團), one of China’s top property developers, which has struggled to pay lenders and suppliers as its housing sales plunge.
Separate data showed that China’s property investment rose 0.3 percent last month, the slowest pace in 18 months, while growth in new home prices eased to an eight-month low.
Authorities in China have stepped up efforts to rein in a red-hot property market, which rebounded sharply from last year’s COVID-19 shock.
Analysts expect policymakers to prioritize stability and maintain their property curbs and restrictions on carbon emissions, even if it means a deeper hit to the economy.
“We think Beijing is willing to shoulder some short-term pain in order to seek long-term gains,” Nomura said.
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