Economic Slowdown in China: Industrial Output and Retail Sales Decline

By Kevin Yao, Ellen Zhang and Ethan Wang

BEIJING (Reuters) – China's industrial output growth slowed to a five-month low in August, with retail sales and new home prices also weakening, raising concerns for aggressive stimulus to support the economy and achieve its annual growth target.

Data released on Saturday signaled diminishing growth momentum in the $18.6 trillion economy, the world's second-largest, as industrial output expanded only 4.5% year-on-year in August, down from 5.1% in July. This figure fell short of the 4.8% growth forecasted in a Reuters poll of 37 analysts.

Retail sales, a crucial consumption indicator, grew by a mere 2.1% in August, slower than the 2.7% increase in July, whereas analysts expected a 2.5% rise. ANZ's senior China strategist Xing Zhaopeng noted, "The momentum is slowing down…The bottleneck remains domestic demand."

Disappointing demand was highlighted as China's oil refinery output decreased for the fifth consecutive month, and crude steel production fell 6.1% from July. Global brokerages have revised their 2024 growth forecasts for China downwards, predicting growth below the government's target of about 5%.

Xing anticipates that Q3 GDP will likely be lower than Q2, prompting expectations for large-scale stimulus. President Xi Jinping has urged authorities to meet annual economic goals amid a struggling recovery. Lynn Song, ING's chief economist, pointed out that time is running short for policymakers to act amidst economic headwinds.

The ongoing property slump has resulted in consumers reducing their spending, with some experts suggesting issuing shopping vouchers to counter this trend. Premier Li Qiang emphasized the need to stimulate consumption and boost household incomes.

Regarding fixed assets, investment increased by 3.4% during the first eight months of 2024, slightly shy of the expected 3.5% growth. Liu Aihua of the NBS stated that while economic operations remained stable, adverse weather impacted growth.

Local governments have been quicker in issuing bonds for major projects to support investment, but the property sector remains a significant drag on growth. New home prices dropped at the fastest rate in over nine years in August, with only two of 70 surveyed cities reporting price increases.

Proposals to cut interest rates on significant mortgages are being considered to aid the property market, though much bolder measures may be needed. Unemployment ticked up to 5.3% in August from 5.2%, driven partly by an influx of college graduates seeking jobs. Despite rising exports, experts are concerned about the sustainability of this trend amid rising trade tensions.

Zhiwei Zhang from Pinpoint Asset Management expressed uncertainty about how growth will fare in 2025, cautioning that tight fiscal policies may persist into next year as global growth is expected to decelerate, putting pressure on China’s exports.