As new COVID-19 outbreaks and floods disrupted business operations, Republic of China’s factory output and retail sales growth slowed sharply and missed expectations in July, adding to signs the economic recovery is losing momentum.
Data from the National Bureau of Statistics (NBS) on Monday showed that industrial production in the world’s second-largest economy increased 6.4% year-on-year in July despite analysts’ expectation of output to rise 7.8% after growing 8.3% in June.
Aside from the industrial production data, retail sales increased 8.5% in July from a year ago, far lower than the forecast 11.5% rise and June’s 12.1% uptick.
China’s economy has rebounded to its pre-pandemic growth levels, but the expansion was 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.
Consumption, industrial production, and investment could all slow further in August, analysts from Nomura said in a note, due to COVID-19 controls and tightening measures in the property sector and high-polluting industries.
Production controls sent crude steel output to the lowest monthly level since April 2020 in July. Meanwhile, China tightened social restrictions to fight its latest COVID-19 outbreak in several cities, hitting the services sector, especially travel and hospitality in the country.
Reacting to the development, Head of Asia Economics at Oxford Economics, Louis Kuijs, said that future outbreak of pandemics would continue to affect the country’s economy owing to her approach and emergency response to health threats.
“Given China’s ‘zero tolerance’ approach to Covid, future outbreaks will continue to pose a significant risk to the outlook, even though around 60% of the population is now vaccinated,” he said.
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% from a year earlier in July, will likely remain high for some time, the NBS said.