China's economy loses steam as factory output, retail sales miss forecasts

BEIJING : China's factory output grew more slowly than expected and retail sales unexpectedly dropped in October, suggesting the world's second-largest economy is losing momentum as it struggles with protracted COVID-19 curbs and a property downturn.

Property investment also fell at its fastest pace in 32 months, pointing to further weakness in a sector that accounts for a quarter of the economy.

China's economy is facing a series of headwinds including its zero-COVID policy, a property slump and global recession risks. Recent moves to ease some COVID curbs and provide financial support to the property market have underpinned market sentiment, but analysts expect Beijing's strict COVID policy to continue to weigh on economic activity.

Tuesday's figures were the latest to point to a weakening economy after recent data also showed exports unexpectedly contracting and new bank lending tumbling more than expected. Recent inflation data also showed faltering domestic demand.

"October activity growth broadly slowed and missed market expectations, pointing to a weak start to Q4 as a worsening COVID situation, prolonged property downturn and slower export growth more than offset continued policy stimulus," analysts at Goldman Sachs said in a note.

Industrial output rose 5.0 per cent in October from a year earlier, missing expectations for a 5.2 per cent gain in a Reuters poll and slowing from the 6.3 per cent growth seen in September, data from the National Bureau of Statistics (NBS) showed on Tuesday.

Retail sales, a gauge of consumption, fell for the first time since May, when Shanghai was under a city-wide lockdown. Sales dropped 0.5 per cent, against expectations for a 1.0 per cent rise and compared with a 2.5 per cent gain in September.

A week-long National Day holiday did little to boost consumption in October, traditionally a popular month for domestic travels.

COVID outbreaks widened across the country in October, disrupting pandemic-sensitive service businesses, such as the restaurant industry. China's catering revenue slumped 8.1 per cent, down sharply from a 1.7 per cent drop in September, NBS data showed.

November is shaping up to be even worse, said Zichun Huang, economist at Capital Economics.

"With exports cooling, the property sector still in the doldrums and the zero-COVID policy likely to remain in place longer than many hope, the near-term outlook is gloomy."

PROPERTY STILL IN THE DOLDRUMS

Property investment fell 16.0 per cent year-on-year in October - its biggest drop since January-February 2020, according to Reuters calculations based on NBS data. It slumped 12.1 per cent in September.

Property sales measured by floor area dropped 23.2 per cent year-year in October, falling for a 15th straight month, with buyers reluctant to take on more debt as the economy slows amid protracted COVID restrictions.

China's property sector has slowed sharply as the government has sought to restrict excessive borrowing. A plan to shore up liquidity outlined by Chinese regulators on Sunday sent Chinese property stocks and bonds soaring on Monday.

China's financial regulator said in a notice published on Monday it will allow property developers to access some pre-sale housing funds, in the latest move to relieve the liquidity crunch.

"It is clear that new policies to boost domestic demand are needed to refuel China's fragile recovery. Sluggish consumption and faltering property investment remain dawdlers, due to still-weak expectations on household income and macro growth," said Bruce Pang, chief economist at Jones Lang Lasalle.

Fixed asset investment expanded 5.8 per cent in the first 10 month of the year, versus expectations for a 5.9 per cent rise and growth of 5.9 per cent in January-September.

Hiring remained low among companies growing increasingly wary about their finances. The nationwide survey-based jobless rate stayed at 5.5 per cent in October, unchanged from September. Youth unemployment stood at 17.9 per cent, also the same level as September.

The country is on track to miss its annual growth target of around 5.5 per cent, analysts say. Economists in a Reuters poll expect the economy to grow 3.2 per cent in 2022.