China's economic recovery losing steam, testing policymakers

Tuesday's data also showed a further decline in property investment

By Reuters

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A building materials factory in Nantong, in China's eastern Jiangsu province. Industrial output grew 5.6 per cent in April from a year earlier. — AFP
A building materials factory in Nantong, in China's eastern Jiangsu province. Industrial output grew 5.6 per cent in April from a year earlier. — AFP

Published: Tue 16 May 2023, 1:30 PM

Last updated: Tue 16 May 2023, 1:31 PM

China’s April industrial output and retail sales growth undershot forecasts, suggesting the economy lost momentum at the beginning of the second quarter and intensifying pressure on policymakers to shore up a wobbly post-Covid recovery.

Tuesday’s batch of data, which also showed a further decline in property investment, adds to concerns about the outlook for the world’s second-biggest economy as both its domestic and export engines of growth remain underpowered.


Industrial output grew 5.6 per cent in April from a year earlier, accelerating from the 3.9 per cent pace seen in March, data released by the National Bureau of Statistics (NBS) showed. It was well below expectations for a 10.9 per cent increase in a Reuters poll of analysts although it marked the quickest growth rate since September 2022.

Retail sales, a gauge of consumption, jumped 18.4 per cent, up sharply from a 10.6 per cent increase in March for their fastest increase since March 2021. Analysts had expected 21.0 per cent growth.


The year-on-year figures were heavily skewed by contractions last April when the financial hub of Shanghai and other major cities were under stringent anti-virus lockdowns and curbs, which severely impacted growth in the Asian giant in 2022.

“Today’s weaker-than-expected data show how difficult it is to keep the growth engine running after restarting it,” said Bruce Pang, chief economist at Jones Lang Lasalle.

Nomura economists took an even dimmer view: “As disappointment kicks in, we see a rising risk of downward spiral, resulting in weaker activity data, rising unemployment, persistent disinflation, falling market interest rates and a weaker currency.”

“Year-over-year growth in Q2 may still look elevated, thanks to a low base, but sequential growth could experience a material decline,” they said.

Policy support

Indeed, other data over the past week showing shrinking imports in April, deepening factory gate deflation and worse-than-expected bank loans signalled weak domestic demand, raising pressures on policymakers to shore up the economic recovery as global growth falters.

China’s central bank kept the interest rate unchanged on Monday as expected, but markets are betting on more monetary easing in the coming months as the commodities data also highlighted pockets of weakness across the economy.

The country’s average daily coal production, aluminium output and crude steel output all fell in April from a month earlier.

Zhou Hao, economist at Guotai Junan International, expects the central bank to cut interest rates “as economic downturn pressure still remains.”

China’s cabinet in late April unveiled plans to boost employment and trade as the government tries to meet its modest growth target of about 5 per cent in 2023, after badly missing last year’s goal.

Out of ‘sweet spot’

The offshore Chinese yuan weakened towards a two-month low while the Aussie dollar flipped from early small gains to a loss after the discouraging data.

On top of the broad demand woes, Chinese policymakers have to contend with headwinds from recent Western bank failures, rising global borrowing costs, high domestic debt and the Ukraine war.

The data also showed fixed asset investment expanded 4.7 per cent in the first four months of 2023 year-on-year, slowing from the 5.1 per cent pace in the January-March period.

Private fixed-asset investment rose only 0.4 per cent, a sharp contrast to the 9.4 per cent jump in investment by state entities, indicating weak business confidence.

Investment in the property sector, a key pillar of the economy, tumbled 16.2 per cent year-on-year last month after a 7.2 per cent drop in March, according to Reuters’ calculations based on official data, as investors remain cautious due to still-fragile demand.

Hiring was still low among companies wary about their finances. The youth jobless rate hit a record high at 20.4 per cent, up from 19.6 per cent in March, which Zhiwei Zhang, chief economist at Pinpoint Asset Management, described as a “worrying sign”.

“With China now out of the sweet spot of reopening, hope of further sentiment repair could be diminishing in the absence of decisive government actions,” Citi economists said in a note.

“We reckon that policymakers need to move from the wait-and-see mode to proactive easing and expect 20bps policy rate cut in the remainder of the year.”


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