China’s economy loses momentum with limited factory and consumption growth

China’s industrial production and retail sales grew less than expected in April, indicating that the economy lost momentum at the start of the second quarter, and increasing pressure on politicians to support a shaky post-COVID-19 recovery.

Data released by China’s National Bureau of Statistics on Tuesday showed that industrial output grew 5.6 percent in April compared to a year earlier, accelerating from 3.9 percent in March. But it is far below expectations of a 10.9 percent increase in a Reuters poll of analysts, although it represents the fastest growth rate since September 2022.

Retail sales jumped 18.4% from 10.6% in March, marking its fastest increase since March 2021. Analysts had expected retail sales to grow 21%.

Other data released last week showed that imports contracted in April, and bank loans declined more than expected, indicating weak domestic demand, which intensifies pressure on policymakers to support the economic recovery as global growth falters.

This means that China’s economic recovery is still faltering since the lifting of strict restrictions to contain “Covid” in December 2022.

Fixed capital investment increased by 4.7 percent over a one-year period in the first four months of the year. This is lower than the expected 5.7 percent. This is an indication of spending on real estate, infrastructure, equipment or machinery, sectors that the government relied on to stimulate activity.

China’s central bank kept interest rates unchanged on Monday as expected, but markets are betting on more monetary easing in the coming months.

China’s central bank struck a reassuring tone after official figures were published last week showing inflation increased by just 0.1 percent year-on-year in April. It is the lowest level since 2021. The central bank said, “Consumer prices continue to rise at a moderate pace… and economic operations continue… in the medium and long term… there is no basis for expecting a deflation.”

China is aiming for growth of around 5 percent this year, one of its lowest growth levels in decades, though it said it “won’t be easy” to achieve. But economist Jiuyi Zhang of Pinpoint Asset Management says adopting “a low level leaves the government room to manoeuvre.”

The unemployment rate among Chinese youth aged 16 to 24 reached a record high of 20 percent in April. The service sector is struggling to absorb the millions of rural migrants who flock to the cities.

However, the unemployment rate in urban areas alone decreased slightly in April to 5.2 percent (-0.1) points compared to March.