China’s economic recovery is showing signs of losing steam, dampening expectations for robust growth this year. Weak property sales, industrial output, and consumption have eroded confidence in the country’s bounce back from the COVID-19 pandemic. Disappointing economic data in April and early May, including industrial production, profits, property sales, and credit growth falling short of analysts’ projections, have hurt markets. Commodities like copper and iron ore have seen price declines, stocks have dropped, and the renminbi has weakened against the US dollar. Consumer spending, which initially rebounded after COVID-19 restrictions were eased earlier this year, has also declined due to a gloomy economic outlook.
One of the concerns is dwindling consumer confidence and uncertainty about the future. Private investment remains weak, and entrepreneurs are hesitant to engage. These challenges come after Chinese policymakers adopted a more conciliatory tone to boost business confidence and reignite the economy, which had been stifled by pandemic restrictions for three years. The government had also set a cautious growth forecast following a disappointing 2022, during which the economy grew only 3%—the lowest in decades—due to sporadic lockdowns, a property market collapse, and travel restrictions.
Source: Financial Times
While the economy showed signs of recovery in the first quarter of 2023, with a GDP expansion of 4.5% driven by booming exports and retail sales, recent weeks have brought a weakened outlook. The property market, in particular, has shown fragility, with sales dropping to 63% of 2019 levels in April, down from 95% in March. This decline in property sales has had a spill-over effect on industrial production, which fell in April compared to the seasonally adjusted figures of 2019, as demand for cement, glass, and other goods declined. Household consumption, a crucial driver of the recovery, has also lost ground. The slowing momentum has resulted in a record high youth unemployment rate of 20% last month.
Chinese policymakers now face the decision of whether the recent sluggishness is a temporary setback or if further government support is necessary. Officials are likely to monitor factory activity over the next months before making any decisions. Potential stimulus measures could include targeted subsidies for vehicle purchases, relaxing restrictions on property acquisitions, and funding infrastructure projects.
Given the low base of last year’s economic performance, with authorities shutting down major cities for months, Beijing’s full-year growth target of 5% for 2023 should still be achievable. The government is unlikely to let growth dip below that level to prevent prolonged unemployment and potential social issues, as social stability remains a priority.
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