Economy

China’s economy under pressure as output, retail sales growth slow

New Covid-19 outbreaks and floods disrupted business, suggesting recovery is losing momentum

This photo taken on August 16, 2021 shows workers producing washing machine parts at a factory in Nanjing, in China’s eastern Jiangsu province. Photo by STR/AFP via Getty Images)

Mon Aug 16 2021 - 07:01

China’s factory output and retail sales growth slowed sharply and missed expectations in July, as new Covid-19 outbreaks and floods disrupted business operations, adding to signs the economic recovery is losing momentum. Industrial production in the world’s second largest economy increased 6.4 per cent year-on-year in July, data from the National Bureau of Statistics (NBS) showed on Monday. Analysts had expected output to rise 7.8 per cent after growing 8.3 per cent in June. Retail sales increased 8.5 per cent in July from a year ago, far lower than the forecast 11.5 per cent rise and June’s 12.1 per cent uptick.

China’s economy has rebounded to its pre-pandemic growth levels, but the expansion is losing steam as businesses grapple with higher costs and supply bottlenecks. New Covid-19 infections in July also led to fresh restrictions, disrupting the country’s factory output already hit by severe weather this summer. Asian share markets slipped on Monday after the data showed a surprisingly sharp slowdown in the engine of global growth. Data earlier this month also showed export growth, which has been a key driver of

China’s impressive rebound from the Covid-19 slump in early 2020, unexpectedly slowed in July. Fu Linghui, an NBS spokesperson, said at a briefing on Monday that

China’s recovery remains uneven due to sporadic Covid-19 outbreaks and natural disasters. “The domestic economic recovery still faces many challenges, and constraints on production increased,” said Fu.

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China has tightened social restrictions to fight its latest Covid-19 outbreak in several cities, hitting the services sector, especially travel and hospitality in the country.

"Given China's 'zero tolerance' approach to Covid, future outbreaks will continue to pose significant risk to the outlook, even though around 60 per cent of the population is now vaccinated," said Louis Kuijs, head of Asia economics at Oxford Economics, in a note. The country has also faced severe weather in several provinces, with record rainfall in Henan province last month causing floods that killed more than 300 people. Higher commodity prices are also pressuring small and medium-sized firms in particular. Smaller companies are unable to pass on recent rises in raw material costs to buyers, said a sales manager at a medical equipment factory in the eastern province of Jiangsu. "We don't dare to increase our prices...but our prices cannot fall, otherwise there will be no profit at all," he said.

China’s producer price inflation, which grew 9.0 per cent from a year earlier in July, will likely remain high for some time, the NBS said on Monday. - Reuters

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