China’s retail sales, factory output top forecasts in boost to recovery
Retail sales, a gauge of consumption, rose 5.5%, slowing from a 7.4% increase in December but beating an expected 5.2% gain
China’s factory output and retail sales beat expectations in the January-february period, marking a solid start for 2024 and offering some relief to policymakers even as weakness in the property sector remains a drag on the economy and confidence.
Monday’s data join recent beter-thanexpected exports and consumer inflation indicators, providing an early boost to Beijing’s hopes of reaching what analysts have described as an ambitious 5.0 per cent GDP growth target for this year.
“China’s activity data broadly stabilised at the start of the year. But there are still reasons to think some of the strength could be one-off,” said Louise Loo, China economist at Oxford Economics.
Industrial output rose 7.0 per cent in the first two months of the year, data released by the National Bureau of Statistics (NBS) showed on Monday, above expectations for a 5.0 per cent increase in a Reuters poll of analysts and faster than the 6.8 per cent growth seen in December. It also marked the quickest growth in almost two years.
Retail sales, a gauge of consumption, rose 5.5 per cent, slowing from a 7.4 per cent increase in December but beating an expected 5.2 per cent gain.
The eight-day Lunar New Year holiday in February saw a solid return of travel, which supported revenue of tourism and hospitality sectors. That also led to a 3 per cent growth in oil refinery throughput to meet strong demand for transport fuels.
The NBS publishes combined January and February industrial output and retail sales data to smooth out distortions caused by the shiting timing of the Lunar New Year.
“Consumers were buoyed temporarily by festivities-related spending at this start of the year. In the absence of decisive consumption-related stimulus this year, we think it would be difficult to sustain a robust consumer spending pace this year,” Oxford’s Loo said.
Loo’s cautious comments reflect broader consensus among China watchers that Beijing has its work cut out in achieving its 2024 economic growth target of “around 5.0 per cent”. While the goal was similar to 2023, analysts note last year had a lower base effect due to COVID curbs in 2022.
Investors were relieved by the beter-thanexpected data, with Asian shares firming and Chinese blue chips up 0.4%.
A protracted crisis in the property sector, a key pillar of the economy, remains a major concern for policymakers, consumers and investors.
Monday’s data offered litle relief on that front with declines in property investment narrowing in January-february, but still far from levels of reaching stability.
The frailty of the sector was highlighted by the poor demand. Property sales by floor area logged a 20.5 per cent slide in January-february from a year earlier, compared with a 23.0 per cent fall in December last year.
Goldman Sachs economists said China’s sequential growth momentum remained solid in the first quarter despite notable divergence across sectors.
“However, to secure the ambitious ‘around 5 per cent’ growth target this year, more policy easing is still necessary, especially on the demandside (e.g., fiscal, housing and consumption).”
On the brighter side, fixed asset investment expanded 4.2 per cent in the first two months of 2024 year-on-year, versus expectations for a 3.2 per cent rise. It grew 3.0 per cent in the whole of 2023.
Notably, private investment grew 0.4 per cent in the first two months, reversing the decline of 0.4 per cent in the whole year of 2023 The job market, another area closely watched by authorities and investors, showed mixed results having deteriorated sharply during the COVID years.
The nationwide survey-based jobless rate rose to 5.3 per cent in February from 5.2 per cent January, which NBS spokesperson Liu Aihua atributed to seasonal factors associated with the Lunar New Year.
Premier Li Qiang promised at the annual parliamentary meeting earlier this month to transform the country’s growth model and defuse risks in the property sector and local government debt.
The country’s central bank governor Pan Gongsheng also said earlier this month that there was still room to cut banks’ reserve ratio requirement (RRR), following a 50-basis points cut announced in January, which was the biggest in two years.
Global monetary easing expectations may also offer some relief for China’s hopes of strengthening its vast manufacturing sector although economic conditions in many key developed nations look gloomy over the near term. Britain slipped into a recession in the second half of last year, while Japan and the eurozone have shown meagre growth.