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China’s economy slows as industrial output weaker than expected

Effects of worsening trade war weigh on China.
Pedestrians walk along a street as a buildings under construction stand in the background in downtown Beijing, China. Image: Bloomberg

China’s economy slowed further in August, indicating current stimulus policies may not be enough to shield the it from the worsening effects of the trade war with the US.

Industrial output rose 4.4% from a year earlier, versus a median estimate of 5.2%. Retail sales expanded 7.5%, compared to a projected 7.9% increase. Fixed-asset investment slowed to 5.5% in the first eight months, versus a forecast 5.7%

Key insights

  • The industrial output reading was the lowest single-month figure since 2002, with only a combined Jan-Feb result in 2009 lower. China merges some statistics due to the Lunar New Year holiday
  • The data form further evidence that policy makers’ efforts to brake the slowdown in the economy are falling behind, as the nation faces structural downward forces at home and the likelihood of yet-higher tariffs on exports to the US
  • “The pace of economic slowdown is faster than expected,” and the impact of the trade war on Chinese manufacturers has been relatively big, said Peiqian Liu, China economist at Natwest Markets Plc in Singapore. There are likely to be more easing measures including cuts to banks’ reserve ratios and the PBOC’s mid-term lending rate, although that cut probably wouldn’t happen this week
  • The People’s Bank of China cut the amount of cash banks must hold as reserves this month to the lowest level since 2007, though is still holding off on cutting borrowing costs more broadly
  • Negotiators from China and the US plan to have two rounds of face-to-face negotiations in coming weeks. Both sides have taken steps to show goodwill, and US officials are considering an interim deal to delay tariffs with China, people familiar with the matter told Bloomberg
  • “The low retail sales is particularly worrying,” said Raymond Yeung, chief Greater China economist at Australia & New Zealand Banking Group. “To stabilise growth, the next few months will see more aggressive policy efforts.”
  • The Shanghai Composite swung between gains and losses before paring the decline to 0.2% as of 10:52 am local time. Futures contracts on China’s 10-year government bond erased loss of 0.28% to trade 0.07% higher.

Get more

  • The output slowdown was almost across the board, with food processing and general equipment manufacturing unchanged from last year. Car output rose after declining for four months
  • The growth in consumption of goods slowed to 7.2%, the lowest since April this year but there was an increase in food sales
  • The unemployment rate fell to 5.2% from 5.3% in July. The rate has moved in a band between 5% and 5.3% all year.

© 2019 Bloomberg L.P.

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