Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

China unexpectedly cuts key rates as economic data disappoints

Economy Aug 15, 2022 07:26AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: A worker welds a bicycle steel rim at a factory manufacturing sports equipment in Hangzhou, Zhejiang province, China September 2, 2019. China Daily via REUTERS/File Photo
 
GS
+3.23%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

BEIJING/SHANGHAI (Reuters) -China's central bank cut key lending rates in a surprise move on Monday to revive demand as data showed the economy unexpectedly slowing in July, with factory and retail activity squeezed by Beijing's zero-COVID policy and a property crisis.

The grim set of figures indicate the world's second largest economy is struggling to shake off the June quarter's hit to growth from strict COVID restrictions, prompting some economists to downgrade their projections.

Industrial output grew 3.8% in July from a year earlier, according to the National Bureau of Statistics (NBS), below the 3.9% expansion in June and a 4.6% increase expected by analysts in a Reuters poll.

Retail sales, which only just returned to growth in June, rose 2.7% from a year ago, missing forecasts for 5.0% growth and the 3.1% growth seen in June.

"The July data suggest that the post-lockdown recovery lost steam as the one-off boost from reopening fizzled out and mortgage boycotts triggered a renewed deterioration in the property sector," said Julian Evans-Pritchard, senior China economist at Capital Economics.

"The People's Bank of China is already responding to these headwinds by stepping up support...But with credit growth proving less responsive to policy loosening than in the past, this probably won't be sufficient to prevent further economic weakness."

Local shares gave up earlier gains after the data while the yuan weakened to a one-week low against the dollar and the Australian and New Zealand currencies pulled back from their recent two-month highs.

China's economy narrowly escaped a contraction in the June quarter, hobbled by the lockdown of the commercial hub of Shanghai, a deepening downturn in the property market and persistently soft consumer spending.

Risks still abound as many Chinese cities, including manufacturing hubs and popular tourist spots, imposed lockdown measures in July after fresh outbreaks of the more transmissible Omicron variant of the coronavirus were found.

The property sector, which has been further rocked by a mortgage boycott that weighed on buyer sentiment, deteriorated in July. Property investment tumbled 12.3% last month, the fastest rate this year, while the drop in new sales deepened to 28.9%. [L4N2ZO0MP]

Nie Wen, Shanghai-based economist at Hwabao Trust, lowered his forecast for the third-quarter gross domestic product growth by 1 percentage point to 4-4.5%, after the weaker-than-expected data.

ING also cut their forecast for China's 2022 GDP growth to 4% from 4.4% previously, and warned a further downgrade is possible, depending on the strength in exports.

BALANCING ACT

To prop up growth, the central bank on Monday unexpectedly lowered interest rates on key lending facilities for the second time this year. Analysts expect the cut is likely to lead to a corresponding reduction in benchmark lending rates next week. [B9N2YU01J]

Many believe the room for the People's Bank of China to ease policy further could be limited by worries about capital outflows, as the U.S. Federal Reserve, and other economies, aggressively raise interest rates to fight soaring inflation.

"Very sluggish credit demand in July on the back of weak activity growth, further deterioration in property indicators and lower-than-expected CPI inflation might have contributed to the PBOC's move," said analysts at Goldman Sachs (NYSE:GS).

"Going forward, whether PBOC would cut interest rates again could be data-dependent in our view."

Official figures on Friday showed new yuan loans tumbled by more than expected in July, as companies and consumers stayed wary of taking on debt.

Chinese policymakers are trying balance the need to shore up a fragile recovery and eradicate new COVID-19 clusters. As a result, the economy is expected to miss its official growth target this year - set at around 5.5% - for the first time since 2015.

In eastern Zhejiang province, the city of Yiwu, a key global supplier of small and cheap products, has been wrestling with COVID-related disruptions on and off since July. Many parts of Yiwu have been thrown into an extended lockdown since Aug. 11.

"We've halted factory production since the city imposed a 'quiet mode'," said a sales manager at a Yiwu factory that makes consumer goods.

Fixed asset investment, which Beijing hopes will compensate for slower exports in the second half, grew 5.7% in the first seven months of 2022 from the same period a year earlier, versus a forecast 6.2% rise and down from a 6.1% jump in January-June.

The employment situation remained fragile. The nationwide survey-based jobless rate eased slightly to 5.4% in July from 5.5% in June, although youth unemployment stayed stubbornly high, reaching a record 19.9% in July.

"In our view, China's growth in H2 will be significantly hindered by its zero-COVID strategy, the deteriorating property sector, and a likely slowdown of export growth," analysts at Nomura said.

"Beijing's policy support could be too little, too late and too inefficient."

China unexpectedly cuts key rates as economic data disappoints
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (4)
Chris Sundo
Chris Sundo Aug 15, 2022 2:04AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
China has been bankrupt for years. Wish there was a term for being more bankrupt than bankrupt :)
Dave Jones
Dave Jones Aug 14, 2022 11:48PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
This is not going to help them
Thierry Lebeau
Thierry Lebeau Aug 14, 2022 11:28PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
China exports beat expectations, their housing bubble has been predicted for +10 yrs
Notvery Goodathis
Peteymcletey Aug 14, 2022 11:02PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Unexpectedly.......
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email