China growth outlook dims as real estate, retail pressure worsens

China's retail sales growth decelerated significantly in August, according to official figures released by the National Bureau of Statistics on Tuesday. The 0.4% year-on-year increase marked the second consecutive slowdown since June, when retail sales had grown by 1%. This figure fell short of the 0.8% growth anticipated by economists surveyed by Bloomberg.

While the August performance was an improvement over the 0.6% contraction observed in May, the overall trend indicated a persistent slump in domestic spending. The National Bureau of Statistics highlighted that Beijing has been grappling with sluggish consumption since the end of the Covid-19 pandemic, with stagnant activity dragging down national growth even as exports continue to surge.

Industrial production, on the other hand, demonstrated stronger momentum, expanding by 5.2% in August, up from July's 4.5% growth and surpassing Bloomberg's forecast of 4.8%. The economy operated steadily in August, the NBS stated, while acknowledging that adverse external factors are intensifying. The domestic imbalance between robust supply and feeble demand remains pronounced, with some firms facing operational difficulties, and the foundation for steady economic improvement requires consolidation.

Authorities are targeting an official growth rate between 4.5% and 5.0% for the year, the lowest goal in decades. However, Tuesday's data also revealed that fixed-asset investment contracted 7.2% year-on-year in August, which exceeded expectations. Pinpoint Asset Management's president and chief economist, Zhiwei Zhang, noted in an analyst note that China's economy continues to show diverging signals, with consumption and investment remaining weak while industrial production maintains momentum.

Zhang cautioned that the economy faces downside risks in the third quarter as fiscal support is implemented and transmitted to the economy.