China’s economy is stabilizing after its record expansion in the first quarter, with analysts watching closely for signs of a more significant recovery in consumer spending.
Data due Wednesday will likely show further moderation in activity in May, as the base effects of last year’s pandemic gradually begin to wear off. Economists polled by Bloomberg predict that year-over-year growth in retail sales slowed to 14% from 17.7% in April, while industrial production slowed to 9.2%. Capital investment is expected to have increased by 17% in the first five months of the year compared to the same period in 2020.
The recovery from the pandemic has been driven by heavy industry, real estate and an export boom, with consumer spending remaining the weak link – and therefore the key to a more sustainable growth prospect. While spending likely continued to rise in May as vaccine roll-out accelerated and the labor market improved, signs of the the latest vacation spending figures suggest consumers are still holding back.
“Weak holiday business reflects an overall bumpy road for consumption, especially consumer services,” Citigroup Inc. economists led by Yu Xiangrong wrote in a report. “While the labor market situation has fully returned to pre-Covid-19 levels, worsening income inequality and rising debt burdens, along with permanent behavioral changes, appear to be holding back spending. Household.”
Local virus outbreaks in parts of China have led to tougher social distancing rules in some places since mid-May. This affected tourism spending during the recent long weekend of the Dragon Boat Festival, with incomes about 25% below pre-pandemic levels, according to the government. The data. During the Labor Day break in May, the number of travelers increased slightly but spending was still only 77% of the level reached two years ago, according to official figures.
To eliminate last year’s pandemic distortions, economists will monitor two-year average growth rates. On this basis, the growth of retail sales slowed to 4.3% in April from 6.3% in March. The unemployment rate is expected to remain unchanged at 5.1% in May.
What Bloomberg Economics Says …
China’s activity data is expected to show a continued recovery in supply and demand in May. Year-over-year growth rates will face more difficult base effects. Output growth is likely to be sustained, while investment growth and retail sales may slow. The underlying trends, however, should be strong.
David Qu, Chinese economist
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China’s industrial strength likely continued in May, albeit at a slower pace than the month before. Upstream industries, such as mining and commodity producers, benefit from soaring commodity prices, while exporters of manufactures continue to experience strong demand for their products.
There are, however, risks hanging over the sector. China knows power shortages in parts of the country due to increased electricity consumption and drought in the south, which has hampered hydropower. Some factories in the industrial heartland of southern Guangdong have had to move their operations to off-peak hours, while local media reported shutdowns in the southern and eastern provinces of Yunnan, Sichuan and Zhejiang.
New Covid-19 outbreak in Yantian port in Shenzhen also causes container traffic congestion, further disrupting global supply chains and driving up freight costs.
Economists expect Chinese economy to grow gradually moderate this year, from 8% in the second quarter to 6.2% in the third quarter and 5% in the last three months of the year. Growth is still expected to reach 8.5% for the full year, well above the government objective of “more than 6%”.
– With the help of John Liu and Lin Zhu