China cuts key rates as weak batch of July data darkens economic outlook
Send a link to a friend
[August 15, 2023] By
Kevin Yao and Ellen Zhang
BEIJING (Reuters) -A broad array of Chinese data on Tuesday highlighted
intensifying pressure on the economy from multiple fronts, prompting
Beijing to cut key policy rates to shore up activity but analysts say
more support is needed to revitalise growth.
Just before the release of a batch of July data, China's central bank
unexpectedly chopped one set of key interest rates, and followed it with
cuts on other rates hours later, underlining the rapid loss of the
post-COVID economic rebound that has shaken global financial markets.
Tuesday's data released by the National Bureau of Statistics (NBS),
which comes on top of a raft of weak indicators from last week, showed
retail sales, industrial output and investment all growing at a slower
than expected pace - indicating the engines of business and consumption
in the world's second-biggest economy were severely underpowered.
Additionally, China suspended publishing youth jobless data, which hit a
record high of 21.3% in June.
"All the main activity indicators undershot consensus expectations in
July, with most either stagnant or barely expanding in month on month
terms," said Julian Evans-Pritchard, economist at Capital Economics.
"And with financial troubles at developers such as Country Garden likely
to weigh on the housing market in the near-term, there is a real risk of
the economy slipping into a recession unless policy support is ramped up
soon."
Nomura analysts were equally downbeat on China's economic outlook.
"We believe the Chinese economy is faced with an imminent downward
spiral with the worst yet to come, and the rate cut this morning will be
of limited help," they said.
Most economists see downside risk to Chinese growth but they do not
expect a recession.
Industrial output grew 3.7% from a year earlier, slowing from the 4.4%
pace seen in June, the NBS data showed, and was below expectations for a
4.4% increase in a Reuters poll of analysts.
Retail sales, a gauge of consumption, rose 2.5%, down from a 3.1%
increase in June and missed analysts' forecasts of 4.5% growth despite
the summer travel season.
It was the slowest growth since December 2022, showing how much of a
challenge authorities face as they try to make consumption the key
driver of future economic growth.
MORE STIMULUS
Asian stocks stalled at one-month lows, the yuan hit a 9-month nadir
while the dollar held broadly firm after the weak Chinese data and
latest policy easing measures.
Following the first rate cuts, China's major state-owned banks were seen
selling U.S. dollars and buying yuan in a bid to stem rapid declines in
the currency, three people with direct knowledge of the matter said.
Sovereign bond yields fell to three-year lows, and benchmark stock
indexes were down.
[to top of second column] |
A man and a boy walk at a shopping
center in Beijing, China December 14, 2018. REUTERS/Jason Lee/File
Photo
Record-low credit growth and rising deflation risks in July
necessitated more monetary easing measures to arrest the slowdown,
market watchers said, while default risks at some housing developers
and missed payments by a private wealth manager also soured market
confidence.
Nie Wen, an economist at Hwabao Trust, expects special bonds to be
introduced urgently and said the probability of a reserve
requirement ratio (RRR) cut in the short run is relatively large.
Policymakers last month released a batch of stimulus measures, from
boosting auto and home appliances consumption, relaxing some
property restrictions to pledging support to the private sector, as
a post-COVID rebound rapidly lost steam since the second quarter.
The catering sector, which reaped benefits from the COVID reopening,
saw slower revenue growth in July from June. Investment in the
private sector shrank 0.5% in the first seven months, extending 0.2%
decline in the first half of 2023.
STRUCTURAL PAINS
The persistent drag in the property sector, mounting local
government debt pressure, high youth jobless rate and cooling
foreign demand continue to be major impediments to fostering a
sustainable economic revival.
China is undergoing a painful transition to a less debt-fuelled,
less property-centric and more consumer-driven economy, said Robert
Carnell, Asia-Pacific head of research at ING.
"We will continue to see weak macro data for the foreseeable future.
It is a necessary part of the adjustment and is far preferable to
resurrecting the debt-fuelled property model that propelled growth
previously. But we do need to lower our expectations for China's
growth."
Other data on Tuesday showed fixed asset investment expanded 3.4% in
the first seven months of 2023 from the same period a year earlier,
versus expectations for a 3.8% rise. It grew 3.8% in the
January-June period.
Investment in the property sector tumbled 8.5% year-on-year in
January-July, after shrinking 7.9% in January-June, extending its
fall for the 17th consecutive month.
The nationwide survey-based jobless rate climbed slightly to 5.3%
from 5.2% in June. Among OECD members, the average unemployment rate
was 4.8%, with youth joblessness around 10%.
China set its 2023 growth target at around 5%, but Nomura analysts
warn the country could miss the goal again as it did last year.
"We also see bigger downside risk to our 4.9% y-o-y growth forecast
for both Q3 and Q4, and it is increasingly possible that annual GDP
growth this year will miss the 5.0% mark."
($1 = 7.2838 Chinese yuan renminbi)
(Additional reporting by Liangping Gao and Albee Zhang; Editing by
Shri Navaratnam and Ed Osmond)
[© 2023 Thomson Reuters. All rights
reserved.]
This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content. |