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China’s economic recovery slowed in July, with several key indicators weakening from prior month, as the country experienced persistent Covid resurgence and high-temperature and rainy weather in South China continued to disrupt economic activities.
Data released by the National Bureau of Statistics (NBS) on Monday showed that China’s industrial output grew 3.8% in July from a year earlier and retail sales rose by 2.7%, slowing by 0.1 percentage points and 0.7 percentage points from the previous month, while fixed-asset investment grew by 5.7% on year in the period of January – July, slowing by 0.4 percentage point from the first six months of the year.
Notably, the government’s efforts to spur economic growth has started to show effect and infrastructure investment grew by 7.4% in January – July from a year earlier, compared to the 7.1% growth for the first six months of the year, accelerating for the third consecutive month, showed the data.
Analysts say that the accelerating in infrastructure investment was partly due to faster issuance of local government special-purpose bonds and it’s also attributable to unclogged transportation and logistics which guaranteed project progress.
Fu Linhui, spokesperson of the NBS, said at a press briefing that the economy continued to recover in July and economic operation was largely stable, but the growth momentum slowed marginally and the foundation for further economic improvement needs to be consolidated.
International environment has become more complex and severe in July, the global economic recovery slowed and inflationary pressure remained elevated, and domestically, many regions experienced Covid flareups and meanwhile high-temperature and rainy weather continued to disrupt economic activities, making it more difficult to maintain steady economic operations, said Fu.
“Market demand remained sluggish, which constrain production, led to increase in product inventories and slowed companies’ capital turnover,” said Fu.
Looking ahead, the government will focus on expanding effective demand, make local government special-purpose bonds play its role, increased infrastructure investment and drive up investment in the manufacturing sector, push for implementation of the policy measures to boost consumption and stablize and improve quality of foreign trade, he said.
Wu Chaoming, deputy president of Chasing Institute, said that the full-year consumption is expected to grow by 0-0.2% in 2022.
After the Covid outbreaks, the services sector and a large number of medium- and small-sized companies face mounting difficulties, making it hard for them to create jobs, and salaries also decline, which will be the biggest constraints on consumption, said Wu.
Recently, some regions are witnessing more Covid-19 resurgence which may continue to dampen consumption, he added.
“July’s data shows that the economic recovery remains on course, but it’s not as smooth as expected,” said Luo Zhiheng, chief economist at Yuekai Securities. “Market entities’ confidence and expectations haven’t recovered yet and the real estate sector is still in a downtrend. The latest credit data also showed that the corporate sector is unwilling to borrow as they don’t have enough orders to support investment expansion.”
The economy didn’t show robust recovery since the third quarter, indicating a lack of deep driving force as market demand is shrinking, the real estate sector is still struggling, exports face risks due to recession in the US and Europe, said Zhong Zhengsheng, chief economist at Ping An Securities.
On the same day, the People’s Bank of China cut two key policy rates – the rate on one-year Medium-Term Lending Facility (MLF) and 7-day reverse repurchase agreement – by 10 basis points to 2.75% and 2%, respectively.
“CPI growth accelerated to 2.7% in July and may surpass 3% in the next few months. While China has more room for policy easing compared to many other major economies, the room for both fiscal and monetary easing will narrow in the second half of the year,” said Luo.