The ongoing economic recovery in China appears to have stumbled on Wednesday, after official data fell below expectations.
Depending on the country National Bureau of Statistics, manufacturing output growth slowed for the third consecutive month in May, to 8.8% from 9.8% in April. The consensus had been for a growth of 9.2%.
Retail sales were also below consensus. Analysts had expected growth of 14.0% but sales instead slowed to 12.4% year-on-year from 17.7% in April, mainly due to weaker annual growth in car sales, at 6. 3%.
Growth in capital investment, excluding rural areas, was 15.4% year-to-date in May. The consensus was 19.5% after rising 21.6% in March.
The Chinese economy has performed well in recent months as it sheds the impact of the pandemic. However, risks remain, including new cases of Covid-19 and local lockdowns – such as recent ones in Guangdong, a key region for electronics manufacturing – and weaker consumer demand.
Globally, China faces rising commodity prices and continued supply chain disruption. A chip shortage has also hit manufacturers around the world, especially car makers.
Iris Pang, Chief Economist for Greater China at ING, said: âThe combined blow from Covid, chip shortages and weak auto sales affected investment, production and retail sales in May. This will continue into June.
âChip shortages are now an obvious problem for the automotive industry. We will be closely monitoring the impact of this on other industries, such asâ¦ smartphones and other consumer devices, as sales of these items would increase as the US and Europe begin to recover. of Covid and the summer shopping spree is on its way. “
ING kept its forecast for China’s 2021 GDP at 8.7%.
Freya Beamish, Chief Economist for Asia at Macroeconomic Pantheons, said: “Our stumbling block has been to underestimate the lag between the resumption of local government debt issuance and infrastructure-related output. In this case, the output of all major building components available to this stage fell month over month Problems with spare parts supply also appeared to be a constraint, with motor vehicle production falling sharply for a second consecutive month.
“In summary, production is currently facing strong headwinds, but demand for infrastructure is expected to pick up soon and supply constraints are expected to gradually ease.”
Turning to retail sales, she added: âWe expected a month-over-month rebound, but instead the value of sales fell 1.0% in May, following the 4.5% drop in April.
“The details suggest that the demand for working from home is finally dying out, likely due to saturation, while shopping on the high streets is not yet ready to accelerate. The Delta variant is a serious threat. , but China’s vaccination campaign is progressing rapidly, so we are hopeful of a pickup in spending in the second half of the year. “