cross-posted from: https://lemmy.sdf.org/post/54733640
China’s consumer spending may have contracted for the first time since the pandemic, a setback that would extend a slowdown in an economy whose momentum is faltering despite booming trade.
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Absent stronger demand at home, the economy is set to shift down a gear this quarter as it navigates the disruptions caused by the conflict in the Middle East while the government dials back spending.
Although exports are proving largely immune to the upheaval in shipping and energy markets, some analysts estimate that China’s growth slowed to roughly 4 per cent in April, tracking below the government’s official full-year target of 4.5 to 5 per cent.
“Soft Chinese domestic activity data is likely an omen of decelerating growth in the second quarter, even as external demand remains strong,” said Lynn Song, chief economist for Greater China at ING Bank. “While there appears to be limited urgency for now, China still has room for monetary easing this year if it’s needed.”
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Higher energy prices stemming from the war in Iran are adding further risk to what’s already a bumpy outlook, especially if companies begin to pass on more of their cost increases to consumers.
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A decline in retail sales in May would mark their first monthly drop since the country reopened after Covid-19 in late 2022. The drop is in large part a form of payback for a government programme that encouraged households to trade in old consumer goods, prompting them to bring forward their purchases.
Car sales plunged more than 22 per cent in May from a year earlier in the sixth straight month of double-digit declines. The government has scaled back subsidies for electric vehicle purchases this year, while the Iran oil shock hurt sales of petrol-powered cars.
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Fixed-asset investment (FAI) ...[in May] is estimated to fall 7 per cent on year following a 8.2 per cent slump the previous month, Goldman Sachs economists led by Andrew Tilton wrote in a Friday note. They blamed heavy rainfall and a heat wave in different parts of the country and the slow pace of government bond issuance for the weakness.
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The government lowered public spending in March and April as bond sales decelerated. Authorities likely felt comfortable with the economy’s first-quarter performance, while economists also pointed to a potential lack of eligible projects.
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“Domestic demand remains weak,” Huachuang Securities economists, including Zhang Yu, wrote in a note earlier this month.
“What stands out is the industrial output reading under high oil prices – if it continues to stay soft, it could signal a risk that second-quarter economic growth falls below the target range,” they said, referring to Beijing’s annual expansion goal.
