China’s factories and retai regions faltered in August and production and sales growth hit a one-year low as a fresh coronavirus outbreak and supply disruptions threatened the country’s impressive economic recovery.
Industrial output grew 5.3% in August from a year earlier, narrowing from 6.4% growth in July and marking the weakest pace since July 2020, data from the National Bureau of Statistics showed on September 15. Production growth missed the 5.8% growth. by analysts.
Consumer spending was also hit hard by rising local COVID-19 cases, and sales rose just 2.5% in August from a year earlier, far short of a forecast 7.0% growth and the slowest clip since August last year.
“Economic growth slowed in August as consumption was hit by the impact of earlier COVID-19 outbreaks and investment remained weak,” said Louis Kuijs, head of Asia Economics at Oxford Economics. “Meanwhile, a new outbreak that began a few days ago in Fujian is posing downside risks to our forecast of a pick-up in growth in Q4 after a weak Q3.”
The world’s second-largest economy has made a remarkably strong revival from last year’s coronavirus-led recession, but has been hit by supply chain constraints, semiconductor shortages, restrictions on high-polluting industries and crackdowns on property investments over the past few months. The pace has slowed down. .
Looking ahead, analysts at Nomura expect the weakness to extend into September given the new wave of delta cases in Fujian province and deteriorating property market conditions as authorities tighten up on the region.
In the industrial sector, production restrictions hit aluminum and steel production, while sharp cuts in fuel export quotas hit China’s crude oil through puts.
Social restrictions due to the COVID-19 delta variant have affected the catering, transportation, housing and entertainment industries in several provinces.
China’s services activity fell in contraction in August, a private sector survey showed, as restrictions to curb COVID-19 once again closed shopping malls and many businesses in parts of the country.
KFC operator Yum China Holdings Inc said on September 14 that its adjusted operating profit would be impacted by 50% to 60% in the third quarter as the spread of Delta Edition in China led to restaurant closures and “rapid sales reduction”.
Xingyang Chen of the Greater China Economy State HSBC said, “As growth approaches the low end of the officially projected potential growth range of 5.0-5.7%, Beijing in our view targeted easing to generate a moderate pick-up in growth.” can increase.” .
“We expect the government to further accelerate the issuance of special bonds and the central bank will introduce more targeted easing measures, including targeted RRR reduction, to support SMEs.”
Analysts also expect China to intensify spending on infrastructure projects later this year.
focus on property
Weak figures could have a cascading effect on the broader economy amid growing concerns in China’s property sector.
Particular attention has been focused on the Evergrande Group, one of China’s top property developers, which has struggled to make payments to lenders and suppliers as its housing sales.
Separate data from September 15 showed that China’s property investment rose 0.3% in August, the slowest pace in 18 months, while growth in new home prices fell to an eight-month low.
Authorities in China have stepped up efforts to rein in the hot property market, which was sharply rebounded by last year’s COVID-19 shock.
For now, analysts expect policymakers to prioritize sustainability and maintain curbs on their assets and curbs on carbon emissions, even if it means a deepening impact on the economy.
“We think Beijing is willing to take some short-term pain to gain long-term gains,” Nomura said.
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