China economy under pressure as factory output, retail sales growth slow sharply

BEIJING (Reuters) -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% year-on-year in July, according to data released by the National Bureau of Statistics (NBS), against expectations for 7.8% growth and after rising 8.3% in June.

Retail sales increased 8.5% last month, far lower than the forecast 11.5% increase and June’s 12.1% 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 contraints on production increased,” said Fu.

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.

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.

China’s crude steel output fell in July to the lowest monthly level since April 2020 as authorities stepped up production controls.

A growing number of analysts have been cutting their third quarter growth estimates for China. The country’s gross domestic product (GDP) expanded 7.9% in the April-June quarter from a year earlier.

In July, the People’s Bank of China reduced the amount of cash banks must hold as reserves, and many analysts expect another cut later this year to support growth amid signs of increasing pressure on the economy.

Fixed asset investment grew 10.3% in January-July from the same period a year ago, compared with an 11.3% rise tipped by a Reuters poll and a 12.6% increase in January-June.

Private sector fixed-asset investment, which accounts for 60% of total investment, grew 13.4% in the first seven months of the year, compared with a 15.4% gain in January-June.

Property investment, a crucial growth driver of China’s recovery from COVID-19 disruptions, grew 12.7% in January-July, versus 15% rise in the first half of this year.

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