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China’s industrial output and retail sales experienced a slowdown in August, indicating a loss of economic momentum and increasing the likelihood of Beijing implementing additional stimulus measures in the upcoming months. The National Bureau of Statistics (NBS) reported that industrial output grew at the slowest rate since March and retail sales marked their second-slowest month of the year, despite August being a peak summer holiday period.
The NBS described the overall economy as operating smoothly in August but acknowledged numerous challenges in the ongoing recovery, citing adverse external conditions and insufficient domestic demand.
Industrial output saw a 4.5 percent year-on-year increase, down from 5.1 percent in July and below analyst forecasts of 4.7 percent, according to Bloomberg. Retail sales rose 2.1 percent compared to the previous year, down from 2.7 percent in July, also falling short of analysts’ projections of 2.6 percent.
President Xi Jinping recently urged officials to meet the nation’s annual economic and social development goals, which analysts interpret as a push to achieve the gross domestic product growth target of 5 percent year-on-year. Xi has focused on bolstering the industrial sector, particularly high-tech manufacturing, to counteract a three-year property slump impacting household consumption and investor confidence.
This property crisis has led to what analysts describe as a two-speed economy, with rising export volumes juxtaposed against sluggish domestic demand.
Raymond Yeung, Chief Economist for Greater China at the Australia and New Zealand Banking Group, noted that China’s growth momentum had significantly slowed in recent months. He suggested that the disparity between the official growth target and the actual figure could be as much as 0.4 to 0.5 percent, likely prompting the authorities to introduce a stimulus package.
August statistics also revealed that fixed asset investment grew at the slowest rate since last December, and the housing market continued its decline. Fixed asset investment increased by 3.4 percent between January and August, slightly down from 3.6 percent in the previous period, with analysts forecasting 3.5 percent.
Excluding real estate, fixed asset investment rose 7.7 percent year-on-year from January to August. Infrastructure investment, a main focus of government stimulus, was up 4.4 percent yearly, while manufacturing investment grew by 9.1 percent.
Real estate development investment fell by 10.2 percent, and the sales area of new commercial housing decreased by 18 percent.
The government has so far introduced only incremental measures to stabilize the housing market and spur household demand.
Analysts caution that China’s two-speed economy is facing growing risks due to weak domestic demand and increasing export volumes, which could create tensions with trading partners. Goldman Sachs noted that real exports increased by 14 percent over the past year, suggesting that China could face more tariffs if the goods trade surplus continues expanding. The country might need to stimulate domestic demand to balance the risks of new tariffs, which could further impact growth and exacerbate disinflation.
