- China’s industrial output growth slowed more than expected
- Deepening retail sales contraction
- Real estate investment is mostly located in more than two decades
- High unemployment rate nationwide
- Near-term outlook turns bleak after COVID relaxation – Analysts
BEIJING (Reuters) – China’s economy lost momentum in November as factory production slowed and retail sales extended a lower-than-expected decline to their worst reading in six months.
The data points to a further deterioration in economic conditions as lockdowns in many cities, a real estate crisis and weak global demand point to a bumpy road ahead even as Beijing undoes some of the world’s toughest anti-virus restrictions after rare widespread public protests.
National Bureau of Statistics data on Thursday showed industrial output rose 2.2% in November from a year earlier, missing expectations for a 3.6% gain in a Reuters poll, and slowing significantly from the 5.0% growth seen in October. It marked the slowest growth since May, due in part to disruptions in the major manufacturing centers of Guangzhou and Zhengzhou.
Retail sales fell 5.9% amid widespread weakness in the services sector, also the sharpest contraction since May. Analysts had expected a measure of consumption to contract by 3.7%, accelerating from a 0.5% decline in October.
In particular, sales in the contact-intensive catering segment fell 8.4% from a year earlier, accelerating from an 8.1% drop in October.
Meanwhile, auto production fell 9.9%, reversing from an 8.6% increase in October.
The Chinese yuan fell against the dollar on Thursday, as the data hurt investor confidence.
“The weak activity data suggests that policy needs to ease further to revive growth momentum,” said Hao Zhou, chief economist at GTJAI. “The increased volume of extension in the MLF this morning is in line with the overall easing policy tones. Looking ahead, we also expect MLF rates to be cut by 10 basis points in the next first quarter.”
China’s central bank ramped up injections of liquidity into the banking system on Thursday and kept rates on medium-term policy loans, or MLFs, to maintain adequate liquidity conditions.
The world’s second largest economy has been depressed by the policy of not spreading the Corona virus, as strict controls on movement impeded consumption and production. Other headwinds the country faces are real estate stagnation, global recession risks, and geopolitical uncertainty.
Real estate investment fell 19.9% year-on-year, the fastest pace since the Census Bureau began compiling data in 2000, according to Reuters calculations based on data from the National Bureau of Statistics.
Policymakers have lent support to the sector on nearly all fronts, including lines of credit from banks, bond financing and equity financing, but analysts said such effects are yet to be seen as home sales remain weak.
Fixed asset investment grew 5.3% in the first eleven months of the year, against expectations of a 5.6% increase and 5.8% growth in the January-October period.
Employment remained low among companies worried about their finances. The unemployment rate nationwide rose to 5.7% in November from 5.5% in October. Youth unemployment fell to 17.1% from 17.9% in October.
“The December data could be worse – it’s not because everything is getting worse in China, because the end of the tunnel is coming,” said Alicia Garcia Herrero, chief economist for Asia and the Pacific at Natixis.
“I expect a major collapse in industrial production in December. This will be the direct result of the opening up,” she said, lowering fourth-quarter GDP growth to 2.8% from 3% previously.
China has laid out plans to expand domestic consumption and investment, state media said on Wednesday, as policymakers face multiple challenges in the wake of the sudden easing of harsh COVID-related restrictions, which are expected to lead to a wave of infections.
This will affect businesses and consumers, while the weak global economy will hurt Chinese exports.
The Chinese economy grew just 3% in the first three quarters of this year and is expected to remain near that rate for the whole year, well below the official target of “around 5.5%”.
All eyes are on the closed-door annual Central Economic Work Conference, when Chinese leaders gather to set the economic agenda for the coming year. Policy insiders and analysts said they are likely to plot more stimulus steps, eager to support growth and mitigate disruptions from the abrupt end of COVID-19 restrictions.
($1 = 6.9593 CNY)
Additional reporting by Liz Li, Liangping Gao and Kevin Yao; Editing by Sam Holmes
Our standards: Thomson Reuters Trust Principles.
“Infuriatingly humble analyst. Bacon maven. Proud food specialist. Certified reader. Avid writer. Zombie advocate. Incurable problem solver.”