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China’s retail sales fell in July, raising expectations for modest growth as consumers in the world’s second-largest economy failed to shake off warnings about the coronavirus while recovering in the manufacturing sector has trouble gaining momentum.
Asian markets pulled back Friday from the disappointing set of economic indicators that raised concerns about the fragility of China’s emergence from coronavirus.
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China’s recovery had picked up pace after the pandemic paralyzed the economy’s enormous swathes as rising demand, government stimulus and surprisingly strong exports drove a rebound.
However, data from the National Bureau of Statistics on Friday showed weaker-than-expected year-on-year industrial production growth and retail sales extended decline in a seventh straight month in July. That was somewhat offset by more solid real estate, which showed that recent stimulus supported construction activity.
“Looking ahead, we expect a new acceleration in investment in infrastructure in the coming months as planned government bond issuance continues to rise,” said Martin Rasmussen, China economist at Capital Economics.
“This should drive further handball in industry and construction, and help to slow down the labor market, indirectly increase consumption and keep economic recovery on track.”
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Industrial output grew 4.8% in July from a year earlier, in line with June growth, but less than forecasts for a 5.1% increase.
Retail sales fell 1.1% year-on-year, missing forecasts for a 0.1% rise and after a 1.8% fall in June.
The decline in retail sales was broadly based with clothing, cosmetics, household appliances and furniture declining from June.
A major exception was car sales, which increased 12.3%, reversing from a fall of 8.2% in June.
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Investment, on the other hand, was driven by the rapid expansion in the real estate sector, with analysts expecting that spending on infrastructure in the coming months would accelerate on the back of government support.
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China’s economy returned to growth in the second quarter after a deep decline at the beginning of the year, but unexpected weakness in household consumption waited for momentum.
Investment in fixed assets fell in January-July by 1.6% from the same period last year, in line with expectations, but slower than a decline of 3.1% in the first half of the year.
July-owned investments grew at the fastest clip since April last year, supported by solid construction activity and easier lending. New house prices have risen slightly more slowly in July than a month earlier.
Infrastructure investment, a strong driver of growth, fell 1.0% year-on-year, and required a decline of 2.7% in the first half.
“Once the floods are over, I believe the construction of affected areas will encourage investment in fixed assets and industrial production,” said Iris Pang, chief economist for Greater China at ING.
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(Additional report by Colin Qian; Edited by Sam Holmes)
