China economy under pressure as growth slows down sharply

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China’s economic recovery may have slowed down and put under pressure after the country’s factory output and retail sales growth reduced sharply, missing July expectations.

On Monday, data from the National Bureau of Statistics (NBS) showed that industrial production increased 6.4% year-on-year in July, against expected output of 7.8% after growing 8.3% in June.

The country’s business operations has been adversely affected by new COVID-19 outbreaks and floods.

In July, retail sales increased 8.5% from a year ago, far lower than the forecast 11.5% rise and June’s 12.1% increment.

China’s economy is losing momentum, after rebounding to its pre-pandemic growth levels, as businesses struggle with higher costs and supply bottlenecks.

The country’s factory output took a hit following fresh COVID-19 restrictions, after being hit by severe weather this summer.

China’s export growth which has been key to the country’s economic recovery from the early 2020 COVID-19 induced slump, slowed down in July, data showed.

Analysts from Nomura have said that COVID-19 restrictions and tightening measures in the property sector, could further slow down industrial production, consumption and investment in August.

Following the recent COVID-19 outbreak in several cities in the country, China has tightened social restrictions

Head of Asia economics at Oxford Economics, Louis Kuijs, said in a note that “Given China’s ‘zero tolerance’ approach to COVID, future outbreaks will continue to pose significant risk to the outlook, even though around 60% of the population is now vaccinated”.

According to the NBS, China’s producer price inflation, which grew 9.0% from a year earlier in July, will likely remain high for some time.

China’s Economic Growth Outlook

In April-June quarter, China’s gross domestic product (GDP) expanded 7.9% from a year earlier, however, analysts have been cutting their third quarter estimates for China.

ANZ, after the unimpressive July data, downgraded its GDP forecast for 2021 to 8.3% from 8.8%.

“Although they are unlikely to inject massive stimulus to boost headline growth, the central bank will maintain an easing bias,” said ANZ analysts in a note.

In July the central bank reduced the amount of cash banks must hold as reserves, many analysts expect another cut later this year to support growth.

Also on Monday, the country’s apex bank pumped billions of yuan through medium-term loans into the financial system, which has been seen as an effort to prop up the economy by market participants, although the cost of such borrowing was left unchanged.

Policy insiders told Reuters earlier in August that China is poised to quicken spending on infrastructure projects while the central bank supports the economy with modest easing steps.

In January-July, fixed asset investment grew 10.3% from the same period a year ago, compared with an 11.3% rise tipped by a Reuters poll and a 12.6% increase in January-June.

Property investment, a crucial growth driver of China’s recovery from COVID-19 disruptions, grew 12.7% in January-July, versus a 15% rise in the first half of this year.

Source: Reuters

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