China released economic data for July that showed slower-than-expected growth as the world’s second-largest economy battled floods and a resurgence of Covid-19.
The slowdown was particularly apparent in individual Chinese consumer spending, despite authorities’ efforts to build up consumption as a driver of economic growth.
The data showed consumers cut back on spending across the board, whether it was on big-ticket items like cars or lower-cost products like cosmetics that can be bought through online e-commerce platforms.
Retail sales rose by 8.5% in July from a year ago, lower than the forecast 11.5%, according to analysts polled by Reuters. Auto-related sales, the largest component of retail sales by value, was the only category to decline in July, down 1.8% year-on-year.
The cosmetics sector was one of the slowest-growing categories, and sales grew just 2.8% in July from a year ago, versus growth of 13.5% in June.
Online sales of physical consumer goods rose by 4.4% in July, far below an average of about 21% for the past five years, according to CNBC calculations of official data.
Bruce Pang, head of macro and strategy research at China Renaissance, attributed the sharp drop in online sales to massive shopping promotions in June, which were followed by logistics disruptions amid Covid-19 travel restrictions, floods and typhoons in July.
E-commerce giants Alibaba and JD.com handled a record $136.51 billion of sales during the June 18 shopping event, known as “618.” China’s other major shopping festival of the year falls on Nov. 11.
Outside of consumption, China’s manufacturing sector also grew more slowly than expected.
Industrial production grew by 6.4%, also below expectations of a 7.8% year-on-year increase in July, according to the Reuters poll.
Fixed asset investment for the first seven months of the year rose by 10.3%, below the forecast of 11.3% year-on-year growth for the January to July period, according to Reuters.
The National Bureau of Statistics noted “the impact of multiple factors including the growing external uncertainties and the domestic COVID-19 epidemic and flooding situation,” according to a release. The bureau added that the “economic recovery is still unstable and uneven.”
On consumption, the bureau’s spokesman Fu Linghui said during a press conference that Chinese willingness to spend is increasing since spending per capita grew faster than that of disposable income in the first half of the year — up 17.4% and 12%, respectively.
The country added 1.24 million new urban jobs in July, on track to reach Beijing’s target of creating more than 11 million new urban jobs this year.
However, the unemployment rate in cities ticked higher to 5.1% in July, up from 5% the prior month. The unemployment rate for those 16- to 24-years-old remained far higher, rising to 16.2% from 15.4% in June.
Economists have cut their China GDP forecasts given the latest wave of travel restrictions and residential community lockdowns in the wake of the spread in the last two months of the highly contagious Delta variant within the country.
Goldman Sachs expects 8.3% growth this year, down from 8.6% previously, according to an Aug. 8 note.
Nomura predicts 8.2% GDP growth for the year, down from 8.9%, according to an Aug. 3 note.
The official growth target is lower, at over 6%.
Although the number of new Covid cases is low compared with other countries, the economic impact could be greater since China has taken a “zero tolerance” approach. Last week, authorities shut a terminal of the world’s third-busiest port after one worker was infected.
