China’s central bank cut key lending rates in a surprise move on Monday to revive demand as data showed the economy unexpectedly slowed in July, with industrial and retail activity stifled by China’s zero-Covid policy. Beijing and a real estate crisis.
The grim set of figures indicates the world’s second-largest economy is struggling to shake off the hit to growth in the June quarter due to tight Covid restrictions, prompting some economists to lower their projections.
Industrial production grew 3.8% in July from a year earlier, according to the Office for National Statistics (NBS), lower than the 3.9% expansion in June and a 4.6% increase expected by analysts. in a Reuters poll.
Retail sales, which barely returned to growth in June, rose 2.7% from a year earlier, below forecasts for growth of 5.0% and the 3.1% seen in June.
“July’s data suggests the post-lockdown recovery ran out of steam as the unique momentum of reopening faded and mortgage boycotts triggered a renewed deterioration in the real estate sector,” said Julian Evans-Pritchard, senior China economist at Capital Economics. .
“The People’s Bank of China is already responding to these headwinds by increasing support… But given that credit growth has proven less sensitive than in the past to policy easing, this is probably not enough to prevent greater economic weakness.
Local stocks gave back earlier gains after the data, while the yuan weakened to a one-week low against the dollar and the Australian and New Zealand currencies fell from recent two-month highs.
China’s economy narrowly escaped a contraction in the June quarter, hampered by the closure of the Shanghai mall, a deepening recession in the housing market and persistently low consumer spending.
Risks still abound as many Chinese cities, including manufacturing hubs and popular tourist spots, imposed lockdown measures in July after new outbreaks of the more transmissible Omicron variant were found.
The real estate sector, which has been further shaken by a mortgage boycott that weighed on buyer confidence, deteriorated in July.
Property investment plunged 12.3% in July, the fastest rate this year, while the fall in new sales deepened to 28.9%.
Nie Wen, an economist at the Shanghai-based Hwabao Trust, lowered his forecast for third-quarter gross domestic product growth by 1 percentage point to 4-4.5%, after data came in weaker than expected.
“Now it looks more and more challenging to even achieve 5-5.5% growth in the second half.”