Retail sales in China fell in July, expecting hopes for a modest rise as consumers in the world’s second-largest economy failed to shake up the fight for the coronavirus as the recovery in the factory sector struggled to gain momentum.
Asian markets retreated on Friday following the disappointing set of economic indicators, which raised concerns about the fragility of China’s emergence from the coronavirus.
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China’s recovery was picking up pace as the pandemic paralyzed much of the economy as mature demand, government stimulus and surprisingly resilient exports delayed a backlash.
However, data from the National Bureau of Statistics on Friday showed weaker-than-expected year-on-year growth in industrial output and prolonged retail sales fall to a seventh straight month in July. This was offset slightly by stronger property investments, which indicated that the last stimulus was supporting construction activity.
“Looking ahead, we expect a renewed acceleration in infrastructure investment in the coming months, as the planned issuance of government bonds continues to grow,”; said Martin Rasmussen, China Economist at Capital Economy.
“This should trigger a further return to industry and construction, helping to absorb the labor market, indirectly increase consumption and keep economic recovery on track.”
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Industrial production grew by 4.8% in July from a year earlier, in line with June growth, but less than forecasts for a 5.1% increase.
Retail sales fell 1.1% year-on-year, missing forecasts for a 0.1% increase and after a 1.8% decline in June.
The decline in retail sales was wide based on clothing, cosmetics, home appliances and furniture all worsening by June.
A major exception was vehicle sales, which rose 12.3%, returning from a decline of 8.2% in June.
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Investment, on the other hand, has been driven by rapid expansion in the property sector, with analysts expecting infrastructure spending to accelerate in the coming months in the back of government support.
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China’s economy returned to growth in the second quarter after a deep downturn earlier in the year, but the sudden weakness in domestic consumption weighed on momentum.
Fixed asset investments fell 1.6% in January-July from the same period last year, in line with expectations but slower than a 3.1% decline in the first half of the year.
July property investments grew to the fastest clip since April last year, backed by strong construction activity and easier lending. New house prices rose at a slightly slower pace in July than a month ago.
Investment in infrastructure, a strong driver of growth, fell 1.0% year-on-year, eased by a 2.7% decline in the first half.
“Once the floods are over, I believe construction work on the affected areas will increase fixed asset investment and industrial production,” said Iris Pang, chief economist for Greater China at ING.
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(Additional reporting by Colin Qian; Edited by Sam Holmes)