China’s economy is facing renewed challenges, as recent data indicates a continued decline in key sectors. The figures released by the National Bureau of Statistics show that factory output and consumer consumption have seen their slowest growth in nearly a year. This disappointing trend has heightened concerns that Beijing may need to implement additional stimulus measures to stave off a significant economic slowdown.
In August, industrial output reportedly increased by just 5.2% year-on-year, marking the lowest growth since August 2024 and falling short of the 5.7% recorded in July. Retail sales, a critical indicator of consumer spending, also showed weakness, expanding by only 3.4%, the slowest rate since November 2024. This was a drop from a 3.7% increase in the previous month, underscoring the ongoing struggles of the economy.
Economists are divided on the urgency of introducing further fiscal support, especially as the government aims for a 5% growth target for the year. Concerns over the job market and the ongoing property crisis are contributing to weakened domestic demand, complicating the situation for manufacturers. They are particularly awaiting clarity regarding trade negotiations with the United States, as global economic conditions remain uncertain.
The economic downturn coincides with extreme weather, including the hottest conditions in over six decades and a prolonged rainy season, which have negatively impacted production capacities. Despite some success in redirecting exports previously destined for the U.S. to markets in Southeast Asia, Africa, and Latin America, the lingering effects of the property sector crisis are proving detrimental.
Lynn Song, chief economist for Greater China at ING, indicated that the weak economic indicators suggest a necessity for further stimulus to ensure a stronger year-end performance. She noted that the impact of consumer loan subsidies set to take effect in September is yet to be assessed, but additional policy support seems essential amid the broader slowdown.
Conversely, Zhaopeng Xing, a senior strategist at ANZ, cautioned that while the weakening data indicates a loss of momentum in China’s economy, it is not at a level that necessitates immediate new stimulus measures. He expressed optimism that policies aimed at boosting service consumption could mitigate the negative effects on aggregate demand.
Compounding these economic concerns, household wealth is declining due to the downturn in real estate, leading consumers to be more cautious with their spending. This is reflected in the rising unemployment rate, which reached a six-month peak of 5.3% in August, up from 5.2% in July and 5% in June. Additionally, new home prices continued to struggle, falling 0.3% from July and down 2.5% compared to the previous year, according to another dataset from the NBS.
As these economic indicators paint a complex picture of China’s recovery efforts, policymakers face increasing pressure to devise strategies that can effectively navigate the current landscape and restore growth in the world’s second-largest economy.
