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China’s May industrial output misses forecasts, retail sales a bright spot

BEIJING (Reuters) – China’s May industrial output lagged expectations and a slowdown in the property sector showed no signs of easing, adding pressure on Beijing to shore up growth, though retail sales beat forecasts thanks to a holiday boost.

The flurry of data on Monday was largely downbeat, underscoring a bumpy recovery for the world’s second-largest economy.

May industrial output grew 5.6% from a year earlier, National Bureau of Statistics (NBS) data showed, slowing from the 6.7% pace in April and below expectations for a 6.0% increase in a Reuters poll of analysts.

However, retail sales, a gauge of consumption, in May rose 3.7% on year, accelerating from a 2.3% rise in April and marking the quickest growth since February. Analysts had expected a 3.0% expansion due to a five-day public holiday earlier in the month.

Zhiwei Zhang, chief economist at Pinpoint Asset Management, said the imbalance “may be partly driven by the fact that there are two more working days in April this year compared to last year, while the working days in May this year and last year are the same”.

Policy easing measures in the housing sector have not yet boosted demand from home buyers on the national level, he added.

Fixed asset investment rose 4.0% in the first five months of 2024 from the same period a year earlier, versus expectations for a 4.2% rise. It grew 4.2% in the January to April period.

Exports helped bolster the economy, with steel and aluminium output posting sharp jumps in May.

“Exports drove industrial growth and manufacturing investment significantly, but real estate weakness still hit household consumption and investment,” said ZhaoPeng Xing, senior China strategist at ANZ.

China’s property market slump, high local government debt and deflation remain heavy drags on economic activity. The latest figures point to an uneven growth that reinforces calls for more fiscal and monetary policy support.

With narrowing interest margins and a weakening currency remaining key constraints limiting Beijing’s scope to ease monetary policy, China’s central bank left a key policy rate unchanged as expected on Monday.

“We still see the likelihood of a cut to the Loan Prime Rate (LPR) this month, particularly on the 5-year tenor, as this will help banks to retain households’ mortgage loans,” said Zhou Hao, chief economist at Guotai Junan International.

But chief China economist at Citi Yu Xiangrong expects a total 20-basis-point policy rate reduction in the second half of this year, but no LPR cut on June 20.

Asian share markets were mostly softer following the mixed China data with Chinese blue chips slipping 0.2%.


China’s economy grew a faster-than-expected 5.3% in the first quarter, but analysts say the government’s annual growth target of around 5% is ambitious as the property sector remains in the doldrums.

Property investment fell 10.1% year-on-year in January-May, deepening from a decline of 9.8% in January-April.

New home prices slipped 0.7% in May from April, marking the 11th straight month-on-month decline and steepest drop since October 2014, according to Reuters calculations based on NBS data.

China’s property sector has been hit by a regulatory crackdown and the government has slashed down payment requirements and cancelled the floor rate for mortgage interest rate.

The central bank last month announced a relending programme for affordable housing to accelerate sales of unsold housing stock.

China’s exports grew faster than expected in May helped by improved global demand, but imports growth slowed significantly.

Tepid demand at home has also kept a lid on consumer prices as confidence remains low in the face of a protracted property sector crisis. New bank lending rebounded far less than expected in May and some key money gauges hit record lows.

© Reuters. File Photo: Employees work on a drilling machine production line at a factory in Zhangjiakou, Hebei province, China November 14, 2018. REUTERS/Stringer/File Photo

The job market overall was steady. The nationwide survey-based jobless rate hit 5.0% in May, the same as that in April.

The government has vowed to create more jobs linked to major projects, roll out measures to promote domestic demand targeted at youths and has pledged greater fiscal stimulus to shore up growth.

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