Key points
- August factory output and retail sales showed the weakest growth since August 2024.
- Industrial output grew by 5.2%, below expectations and the lowest since August 2024.
- Retail sales expanded by 3.4%, the slowest pace since November 2024.
- Economists are divided on the need for further stimulus to meet the annual growth target. Unemployment rose to a six-month high of 5.3% in August.
China’s economic growth faltered in August, with factory output and retail sales registering their weakest performances since August 2024. This slowdown is fueling a debate among economists about the necessity of additional government stimulus to achieve the annual growth target of “around 5%.”
Industrial production expanded by a mere 5.2% year-on-year, falling short of the projected 5.7% and marking the lowest figure since August 2024. Similarly, retail sales, a key indicator of consumer spending, grew by only 3.4%, the slowest pace since November 2024, and significantly lower than the anticipated 3.9%.
The underwhelming economic figures highlight the challenges facing China’s economy. Manufacturers are grappling with uncertainty surrounding US trade relations, while a weak job market and a struggling property sector are dampening domestic demand. Fixed-asset investment also underperformed expectations, growing at a sluggish 0.5% in the first eight months of the year – its worst performance outside of the pandemic.
The weakening economy has led to rising unemployment, reaching a six-month high of 5.3% in August. Furthermore, new home prices experienced a decline, further exacerbating the existing property crisis and impacting household wealth and confidence.
Despite the gloomy data, some economists argue that the current situation doesn’t necessitate immediate large-scale stimulus. They point to government efforts to redirect trade flows away from the US and bolster service consumption as potential mitigating factors.
However, others believe that more substantial policy interventions, including monetary easing and fiscal expansion, are crucial to ensure the economy meets its growth targets. The upcoming consumer loan subsidies, while potentially helpful, are not seen as sufficient to overcome the broader economic slowdown on their own.
The diverging opinions underscore the complexity of the situation. While some argue that the current slowdown isn’t severe enough to warrant drastic measures, others stress the need for proactive intervention to prevent a sharper downturn. The coming months will be crucial in determining the government’s response and its effectiveness in steering the Chinese economy back on track.
The government’s stated commitment to utilizing both fiscal and monetary tools to achieve its targets suggests a willingness to act, but the extent and timing of such action remain uncertain.
