China’s retail sales beat expectations in May, but other economic metrics disappoint

By:
on Jun 17, 2024
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  • China's industrial output grew by 5.6% year-on-year.
  • China’s exports continued to perform well, growing by 7.6% year-on-year in May in U.S. dollar terms.
  • Inflation data for May showed that consumer prices, excluding food and energy, rose by 0.6% from a year ago.

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China’s retail sales in May exceeded expectations, climbing 3.7% compared with a year ago, surpassing the 3% rise anticipated by a Reuters poll of economists.

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This increase indicates a healthy consumer demand despite broader economic challenges.

The country’s National Bureau of Statistics reported that total retail sales of consumer goods reached 3.92 trillion yuan ($540.32 billion), with urban areas seeing a 3.7% year-on-year increase and rural areas experiencing a 4.1% rise.

Mixed performance in other economic metrics

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While retail sales showed robust growth, other key economic indicators fell short of expectations. Industrial output grew by 5.6% year-on-year, missing the 6% increase forecasted by the Reuters poll. Fixed asset investment also underperformed, rising 4% compared to last May, slightly below the anticipated 4.2% increase.

The miss in fixed asset investment was primarily due to a significant decline in real estate investment. Excluding real estate, total fixed asset investment rose by 8.6% year-on-year, highlighting the sector’s drag on overall investment figures.

Stable urban unemployment rate

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The urban unemployment rate held steady at 5% in May, unchanged from April and 0.2 percentage points lower than in May last year.

This stability suggests that the labor market remains relatively resilient despite the broader economic uncertainties.

Export and import performance

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China’s exports continued to perform well, growing by 7.6% year-on-year in May in U.S. dollar terms, beating the Reuters’ forecast for a 6% increase. However, imports missed expectations, rising by only 1.8% during the same period.

The disparity between export and import growth reflects ongoing global demand for Chinese goods while domestic demand for foreign products remains subdued.

Loan and money supply data

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Loan data released on Friday pointed to continued lackluster demand. Outstanding yuan loans rose by 9.3% in May from a year ago, marking the slowest increase on record since 1978, according to Wind Information.

This sluggish loan growth indicates a cautious lending environment and potentially weaker business and consumer confidence.

M1 money supply, which includes cash in circulation and demand deposits, fell by 4.2% year-on-year in May, the most significant decline on record since 1986.

Goldman Sachs analysts noted that a state media outlet affiliated with China’s central bank attributed the slowdown in M1 growth to a crackdown on fake loans and outflows related to wealth management products.

This reduction in money supply could have implications for liquidity in the economy and future consumer spending.

Inflation data

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Inflation data for May showed that consumer prices, excluding food and energy, rose by 0.6% from a year ago.

This modest increase suggests that underlying inflationary pressures remain contained, giving policymakers some leeway to support the economy without triggering significant price increases.

Implications and outlook

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The mixed economic data from May presents a nuanced picture of China’s economic health. While robust retail sales signal resilient consumer demand, underperformance in industrial output and fixed asset investment highlights ongoing challenges.

The stability in the unemployment rate and strong export growth are positive signs, but sluggish loan demand and declining money supply raise concerns about future economic momentum.

China’s policymakers may need to address these mixed signals by continuing to support consumer spending while also tackling underlying weaknesses in investment and lending.

The crackdown on fake loans and wealth management outflows suggests a focus on maintaining financial stability, but these measures could also dampen economic activity in the short term.

As the global economic landscape continues to evolve, China’s ability to navigate these challenges will be crucial.

The government’s response to these mixed indicators will likely influence economic performance in the coming months and shape investor confidence in the world’s second-largest economy.

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