China’s economic recovery in doubt as industrial output falls short

China’s industrial output and consumer spending have fallen short of expectations, fuelling doubts over the strength of the country’s rebound after it dismantled its zero-Covid policy.

Youth unemployment hit a record while a key measure of investment also lagged estimates, casting a shadow over the outlook for the world’s second-largest economy.

Industrial production added 5.6 per cent last month from a year earlier, well below forecasts of a 10.6 per cent rise. Retail sales expanded 18.4 per cent year on year, also missing forecasts. The high rates of growth partly reflect a contrast with lockdowns last year in Shanghai, the country’s biggest city.

Tuesday’s data added to a growing sense that the economy had failed to fully recover following the removal of strict anti-Covid curbs late last year, with a lingering property crisis and concerns over trade activity also clouding the outlook.

“China’s activity indicators missed expectations by a wide margin even with a favorable base,” Xiangrong Yu, chief China economist at Citi, wrote in a note. “With China now out of the sweet spot of reopening, hope of further sentiment repair could be diminishing in the absence of decisive government actions.”

An official reading on property investment revealed a decline of 6.2 per cent for the year to date, worse than analysts’ expectations of a 5.7 per cent fall.

China’s mixed recovery, which included weaker than expected fixed-asset investment growth of 4.7 per cent in the four months to the end of April, has also shown signs of feeding through into metals markets.

Nickel futures in Shanghai fell more than 2 per cent on Tuesday, bringing them 28 per cent lower for the year to date. Dimming expectations for economic growth in the second quarter have also weighed on iron ore futures traded in Dalian, which are down 16 per cent this year, while copper prices last week hit their lowest level in months.

“Everyone was certainly expecting a slightly quicker China reopening and that maybe hasn’t happened in the way some of us were anticipating,” said Matthew Chamberlain, chief executive of the London Metal Exchange, at a conference in Hong Kong on Tuesday. “And then there have clearly been a number of negative geopolitical and macroeconomic factors that have weighed on metals.”

Youth unemployment, which China began recording in 2018, hit 20.4 per cent, surpassing a previous high of 19.9 per cent last summer.

By contrast, the overall urban unemployment rate fell to 5.2 per cent as the broader labour market tightened.

China’s benchmark CSI 300 stock index was little changed, down 0.2 per cent on Tuesday.

Julian Evans-Pritchard of Capital Economics suggested the reopening recovery “still has legs left”, pointing to a 19 per cent rise in retail and catering sales during a national holiday at the start of the month.

But he added the recovery was “likely to fizzle out during the second half of the year” on an unwinding of fiscal support, stalling credit growth, a weaker housing market and the impact of global demand on Chinese exports.

China’s policymakers have set a cautious 5 per cent growth target for 2023, the lowest in decades, after missing a 5.5 per cent target last year when gross domestic product growth came in at just 3 per cent.

In its first-quarter monetary policy report published last week, the People’s Bank of China struck an optimistic tone.

“China’s economy is expected to continue to improve overall, and the growth rate in the second quarter may rebound significantly under the low base effect, laying a solid foundation for achieving the annual growth target smoothly,” it said.

Additional reporting by Joe Leahy in Beijing and William Langley in Hong Kong

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