Doubts on China’s economic recovery due to decrease in industrial production

China’s industrial production and consumer spending fell short of expectations, raising doubts about the strength of the country’s comeback after ending 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 grew 5.6 percent last month from a year earlier, well below forecasts for a 10.6 percent increase. Retail sales expanded 18.4 per cent year-on-year, also missing forecasts. The high rate of growth partly reflects a contrast to the lockdown last year in Shanghai, the country’s largest city.

Tuesday’s data added to a growing sense that the economy had failed to fully recover after the lifting of strict anti-Covid restrictions late last year, with a lingering asset crisis and concerns over business activity also clouding the outlook. Stay covered

“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 for reopening, hope for a further sentiment repair could be waning in the absence of decisive government actions.”

An official reading on asset investment revealed a 6.2 percent decline for the year, worse than analysts’ expectation of a 5.7 percent drop.

China’s mixed recovery, including a lower-than-expected 4.7 percent growth in fixed asset investment in the four months to the end of April, has also shown signs of feeding into metals markets.

Nickel futures in Shanghai fell more than 2 percent on Tuesday, bringing them down 28 percent for the year. Diminished expectations of economic growth in the second quarter have also hit iron ore futures traded in Dalian, down 16 per cent this year, while copper prices last week hit their lowest in months.

“Everyone was certainly expecting China to reopen and maybe some of us weren’t anticipating it,” Matthew Chamberlain, chief executive of the London Metal Exchange, told a conference in Hong Kong on Tuesday. “And then there are obviously a number of negative geopolitical and macroeconomic factors that have weighed on the metals.”

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

In contrast, the overall urban unemployment rate fell to 5.2 percent as the broader labor market tightened.

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

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

But he added that the recovery is “likely to be subdued during the second half of the year” due to a lack of fiscal support, stalling credit growth, a weak housing market and the impact of global demand on sugar exports.

China’s policymakers have set a cautious 5 percent growth target for 2023, the lowest in decades after missing the 5.5 percent target last year when GDP growth was just 3 percent.

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 growth in the second quarter may rebound significantly under a low base effect, laying a solid foundation for smoothly achieving the annual growth target it said.

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

China’s industrial production and consumer spending fell short of expectations, raising doubts about the strength of the country’s comeback after ending 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 grew 5.6 percent last month from a year earlier, well below forecasts for a 10.6 percent increase. Retail sales expanded 18.4 per cent year-on-year, also missing forecasts. The high rate of growth partly reflects a contrast to the lockdown last year in Shanghai, the country’s largest city.

Tuesday’s data added to a growing sense that the economy had failed to fully recover after the lifting of strict anti-Covid restrictions late last year, with a lingering asset crisis and concerns over business activity also clouding the outlook. Stay covered

“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 for reopening, hope for a further sentiment repair could be waning in the absence of decisive government actions.”

An official reading on asset investment revealed a 6.2 percent decline for the year, worse than analysts’ expectation of a 5.7 percent drop.

China’s mixed recovery, including a lower-than-expected 4.7 percent growth in fixed asset investment in the four months to the end of April, has also shown signs of feeding into metals markets.

Nickel futures in Shanghai fell more than 2 percent on Tuesday, bringing them down 28 percent for the year. Diminished expectations of economic growth in the second quarter have also hit iron ore futures traded in Dalian, down 16 per cent this year, while copper prices last week hit their lowest in months.

“Everyone was certainly expecting China to reopen and maybe some of us weren’t anticipating it,” Matthew Chamberlain, chief executive of the London Metal Exchange, told a conference in Hong Kong on Tuesday. “And then there are obviously a number of negative geopolitical and macroeconomic factors that have weighed on the metals.”

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

In contrast, the overall urban unemployment rate fell to 5.2 percent as the broader labor market tightened.

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

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

But he added that the recovery is “likely to be subdued during the second half of the year” due to a lack of fiscal support, stalling credit growth, a weak housing market and the impact of global demand on sugar exports.

China’s policymakers have set a cautious 5 percent growth target for 2023, the lowest in decades after missing the 5.5 percent target last year when GDP growth was just 3 percent.

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 growth in the second quarter may rebound significantly under a low base effect, laying a solid foundation for smoothly achieving the annual growth target it said.

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