Chinese economy weakens as consumer spending and factory output slows

Economists split on need for new Beijing stimulus amid headwinds from Trump tariffs and crisis-hit property sector

China’s economy showed further signs of weakness last month, with important data revealing factory output and consumption rising at their weakest pace for about a year.

The disappointing data adds pressure on Beijing to roll out more stimulus to fend off a sharp slowdown in the world’s second-largest economy, which has struggled to fully recover from the Covid-19 pandemic, with a debt crisis denting its once-booming property sector and exports facing stronger headwinds.

Economists were split over whether policymakers should introduce more near-term fiscal support to hit their annual 5% growth target, with manufacturers awaiting more clarity on a US trade deal and domestic demand curbed by an uncertain job market and property crisis.

Industrial output grew by 5.2% year-on-year last month, National Bureau of Statistics data showed on Monday, the lowest reading since August 2024 and below the 5.7% rise in July. Retail sales, a gauge of consumption, expanded 3.4%, the slowest pace since November 2024, and cooling from a 3.7% rise in the previous month.

“The activity data point to a further loss of momentum,” Zichun Huang, China economist at Capital Economics, wrote in a note. “While some of this reflects temporary weather-related disruptions, underlying growth is clearly sliding, raising pressure on policymakers to step in with additional support.”

Factory activity was hit by the hottest conditions since 1961 and the longest rainy season for the same period.

Authorities are leaning on manufacturers to find new markets to offset Donald Trump’s unpredictable trade policy and weak consumer spending.

Separate data this month showed factory owners have had some success diverting US-bound shipments to south-east Asia, Africa and Latin America, but the drag from the property crisis continues.

“Lynn Song, chief economist, Greater China at ING, suggested the weak data indicated “further stimulus support could be needed to ensure a strong finish to the year”.

She said: “While it is too early to gauge the impact of the consumer loan subsidies coming into effect in September, it is likely that more policy support is still needed, given the broader slowdown across the board.” Song said there was a “high possibility” of further interest rate cuts in coming weeks.

However, Zhaopeng Xing, senior China strategist at ANZ, said that while the data showed momentum in the world’s second-largest economy was weakening, it was not yet bad enough to trigger a new round of stimulus.

Get set for the working day – we’ll point you to all the business news and analysis you need every morning

“Policies and measures to support service consumption are expected to offset the impact of aggregate demand this month,” he said, adding an official crackdown on firms aggressively cutting prices made domestic demand appear worse than it was.

Chinese households, which have seen their wealth shrink in the real estate downturn, have tightened their purse strings as business confidence falters, dampening the jobs market.

Unemployment edged up to a six-month high of 5.3% in August, from 5.2% a month prior and 5% in June.

Meanwhile, new home prices fell 0.3% last month from July and 2.5% on an annual basis, a different NBS dataset showed.

Reuters and Agence France-Presse contributed to this report

Source: www.theguardian.com