China’s Economic Recovery Slowed In April
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China’s Economic Recovery Slowed In April

Growth in retail sales slowed sharply from March pace.

By Johnathan Cheng
Wed, May 19, 2021 11:28amGrey Clock 3 min

BEIJING—China’s economic activity grew at a slower pace in April as retail sales missed expectations, complicating the picture of a steady and balanced recovery in the world’s second-largest economy.

Official data released Monday showed industrial output and fixed-asset investment beating market expectations and continuing to lead the recovery, but domestic consumer spending, which has lagged behind for months, remaining soft.

China’s industrial production in April was up 9.8% from a year earlier, slower than March’s 14.1% pace, the National Bureau of Statistics said Monday. Fixed-asset investment decelerated as well, to 19.9% in the January-April period from 25.6% in the first quarter.

Retail sales, a key gauge of China’s domestic consumption, underwhelmed: April’s figure was up 17.7% from the pandemic-hit level a year earlier, well short of March’s 34.2% pace.

Economists had largely expected the double-digit year-over-year percentage growth that major indicators delivered, given the low-base of comparison from a year earlier, when China’s economy had just begun to bounce back from the coronavirus shock. In the coming months, however, that “low-base effect” will fade, given the economy’s recovery during the spring and summer last year.

Monday’s figures on industrial output and fixed-asset investment actually exceeded the forecasts of economists polled by The Wall Street Journal, who had pegged 9.1% and 19.2%, respectively. Retail sales, however, missed their predicted 24.9%.

To strip out last year’s pandemic distortions, government statisticians and economists have benchmarked this year’s numbers against 2019’s. By that measure, official data showed industrial production up 14.1% in April, largely in line with March’s growth rate, while the pace of retail-sales slowed to 8.8% from March’s 12.9%.

The retail-sales miss was a particular disappointment for economists and policy makers, who have been watching for several months for signs of a tilt toward consumption-driven growth in the Chinese economy, after more than a year of expansion led by manufacturing and exports.

For the Chinese economy as a whole, says Ding Shuang, an economist at Standard Chartered, “The problem is not the growth rate, but its unbalanced recovery. Some sectors, such as industrial activity, appeared to be too hot, while others, like service and consumption, haven’t yet recovered to pre-virus levels.”

China’s strong rebound from the Covid-19 pandemic last year was largely driven by its swift factory resumption and government-led investment, while household spending has repeatedly fallen short of expectations.

Pointing to the softness in domestic spending, the Chinese Communist Party’s Politburo—its top decision-making body—said last month that the economic recovery remains uneven and its foundation less than solid.

China’s gross domestic product reported a record year-over-year gain of 18.3% in the first quarter. That makes meeting Beijing’s official target of “above 6%” growth for 2021 a relatively light lift.

Economists argue that the modest growth target leaves Beijing’s policy makers with more wiggle room to address longer-term structural problems in the economy—such as high leverage, potential asset-price bubbles and, in particular, the weakness of domestic consumption.

Chinese policy makers face a dilemma, Louis Kuijs, an economist with Oxford Economics, told clients in a note Monday: While Beijing wants to dial down leverage generally, the persistently weak consumption numbers may increase “pressure to pursue a more pro-growth macro policy that could increase financial risks and leverage.”

April’s lacklustre consumption data came even as China’s labour market showed signs of improvement. The urban surveyed unemployment rate, China’s headline jobless figure, dropped to 5.1% in April, the lowest level in more than a year.

In a briefing Monday, Fu Linghui, a spokesman for China’s statistics bureau, acknowledged the imbalance in the economic recovery, but said the improving labour market and increasing household income would lift consumption.

Iris Pang, an economist with ING Group, said April’s consumption weakness might prove short-lived, with figures for the five-day Labor Day holiday at the start of May indicating robust spending.

Over the holiday, Chinese people made a total of 230 million trips, marking the first time that traveller numbers topped pre-virus levels. The nation’s box office also broke records for revenue and number of moviegoers.

Meanwhile, though fewer cities in China reported rising home prices in April, average new home prices nationwide in April were up 4.45% from a year earlier, official statisticians said Monday, following a 4.36% year-over-year rise in March—underscoring the challenge that policy makers face in reining in home prices.

Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: May 18, 2021.



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Global economic growth is becoming more broad based, with surveys indicating that business activity in both the U.S. and the eurozone gained momentum in May.

The eurozone economy contracted in the second half of 2023 following a surge in energy and food prices triggered by Russia’s invasion of Ukraine, and the subsequent rise in interest rates intended to tame that inflation.

By contrast, the U.S. economy expanded strongly over the same period, opening up an unusually wide growth gap with the eurozone. That gap narrowed as the eurozone returned to growth in the first three months of the year, while the U.S. slowed.

However, surveys released Thursday point to a fresh acceleration in the U.S., even as growth in the eurozone strengthened. That bodes well for a global economy that relied heavily on the U.S. for its dynamism in 2023.

The S&P Global Flash U.S. Composite PMI —which gauges activity in the manufacturing and services sectors—rose to 54.4 in May from 51.3 in April, marking a 25-month high and the first time since the beginning of the year that the index hasn’t slowed. A level over 50 indicates expansion in private-sector activity.

“The data put the U.S. economy back on course for another solid gross domestic product gain in the second quarter,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Eurozone business activity in turn increased for the third straight month in May, and at the fastest pace in a year, the surveys suggest. The currency area’s joint composite PMI rose to 52.3 from 51.7.

The uptick was led by powerhouse economy Germany, where continued strength in services and improvement in industry drove activity to its highest level in a year. That helped the manufacturing sector in the bloc as a whole grow closer to recovery, reaching a 15-month peak.

By contrast, surveys of purchasing managers pointed to a slowdown in the U.K. economy following a stronger-than-expected start to the year that saw it outpace the U.S. The survey was released a day after Prime Minister Rishi Sunak called a surprise election for early July, banking on signs of an improved economic outlook to turn around a large deficit in the opinion polls.

Similar surveys pointed to a further acceleration in India’s rapidly-expanding economy, and to a rebound in Japan, where the economy contracted in the first three months of the year. In Australia, the surveys pointed to a slight slowdown in growth during May.

Businesses reported that they were raising their prices at the slowest pace since November, which should reassure the European Central Bank. However, the eurozone continued to add jobs in May, suggesting that wages might not cool as rapidly as the ECB had hoped.

The ECB released figures Thursday that showed wages negotiated by labor unions in the eurozone were 4.7% higher in the first quarter than a year earlier, a faster increase than the 4.5% recorded in the final three months of 2023

The ECB has signalled it will lower its key interest rate in early June, while the Fed is waiting for evidence that a slowdown in inflation will resume after setbacks this year.

Nevertheless, eurozone businesses and households shouldn’t bank on successive cuts to borrowing costs, ECB Vice President Luis de Guindos said. “There is a huge degree of uncertainty,” he said. “We have made no decisions on the number of interest rate cuts or on their size,” he said in an interview published Thursday. “We will see how economic data evolve.”

Continued resilience in the eurozone economy would likely make the ECB more cautious about lowering borrowing costs after its first move, economist Franziska Palmas at Capital Economics wrote in a note. “If the economy continues to hold up well, cuts further ahead may be slower than we had anticipated,” she said.

– Edward Frankl contributed to this story.

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