By Vivek Kumar
China’s both industrial output and retail sales surprised analysts with stronger-than-expected performance in the early months of the year, providing a welcome boost for policymakers grappling with a prolonged property market slowdown.
Data from the National Bureau of Statistics (NBS) revealed that factory output surged by 7.0% in the first two months of the year, surpassing predictions of a 5.0% increase. This growth marked the sector’s quickest expansion in nearly two years.
In terms of consumer activity, retail sales also saw growth, albeit at a slower pace compared to December. Rising by 5.5%, retail sales were boosted by solid activity during the Lunar New Year holiday in February, particularly in the travel sector, which benefited tourism and hospitality industries.
“China’s economy continued to show some improvement at the start of the year. We think this recovery will continue over the coming months thanks to the increase in policy support outlined at the NPC, but achieving the government’s target of “around 5.0%” still looks challenging,” noted Zichun Huang, China Economist at Capital Economics.
“We expect economic momentum to improve further in the near-term given the tailwind from policy stimulus. But this recovery may prove short-lived due to the economy’s underlying structural challenges. In particular, despite the decline in home sales, which continued at the start of the year, the correction in property construction is still in its early stages. We expect it to halve in the coming years, pulling down economic growth over the medium-term.”
However, China’s economy still faces challenges such as deflationary pressures, subdued consumer confidence, and financial strains among major property developers. The real estate market, in particular, has been sluggish due to significant debt issues, leading to decreased interest in property purchases.
Despite these challenges, there are signs of stabilization in the housing sector. Property investment declined by 9.0% year-on-year in the first two months of 2024, a slower rate compared to the 24.0% fall in December 2023. Similarly, property sales saw a less severe decline of 20.5% in January-February, compared to 23.0% in December.
China has set an ambitious economic growth target of around 5% for the current year. Achieving this goal will require addressing issues in the real estate market and restoring investor confidence, among other economic reforms.
