China July industrial output growth slows; H2 outlook dims
Nurluqman Suratman
15-Aug-2024
SINGAPORE (ICIS)–China’s industrial output growth in July slowed to a four-month low of 5.1%, aggravating concerns about continued manufacturing slowdown, with a growing set of data suggesting the world’s second-largest economy is struggling to gain momentum.
- H2 industrial production momentum to soften further
- July retail sales grow 2.7% year on year
- Property prices extend decline despite government measures
Official manufacturing purchasing managers’ index (PMI) remained in contraction mode for the third month in July, while exports weakened.
“This slowdown was foreseeable given the last few months of weak PMI data,” said Lynn Song, chief economist for Greater China at Dutch banking and financial information services provider ING.
“As export demand starts to slow and tariffs come into effect, the momentum may moderate further,” Song said.
In July, China’s exports rose by 7.2% year on year, a slowdown from June’s 8.6% growth due in part to the EU’s imposition of higher import tariffs on Chinese electric vehicles. The new duty ranges from 17.4% to 37.6% and took effect on 5 July.
The July official manufacturing PMI was 49.4, below the 50 threshold for expansion.
Industrial production has been one of the key drivers for growth in the first half of 2024, but momentum looks to be softening in the second half of the year, Song said.
In July, China’s auto manufacturing expansion slowed to 4.4% year on year, a marked decline from the 9.0% year-to-date growth and a far cry from the double-digit gains of previous years, he noted.
Auto manufacturing growth has now fallen below the overall industry growth rate for the first time since May 2022, signaling a potential turning point for the sector, according to Song.
“Combined with a more challenging base effect, we expect that policies to boost other areas of the economy will be needed if China is to achieve the 5% growth target for the year,” he added.
In contrast, China’s retail sales – a gauge for consumption – showed signs of revival last month, growing by 2.7% year on year, accelerating from the 2% growth in the previous month, official data showed.
This uptick followed a series of interest rate cuts implemented by the People’s Bank of China (PBoC) throughout July.
The cut in central bank’s short-term seven-day reverse repo interest rate to 1.70% was the first rate cut since August 2023 and came on the heels of a closed-door meeting of the Communist Party’s Central Committee, hinting at a coordinated effort to stimulate economic growth.
China’s Q2 annualized GDP growth came in at 4.7%, falling short of expectations, re-igniting concerns that the government’s full-year growth target of around 5% may not be met.
This has prompted renewed calls for policymakers to implement additional stimulus measures to boost the economy.
“The economy is on the course for a weak start to H2,” Japan’s Nomura Global Markets Research said in a note.
“Both the Caixin and official manufacturing PMIs indicate a broad slowdown in manufacturing activity, weighed on by sluggish domestic demand, as the property correction persists,” it said.
“We expect more meaningful policy measures after September, when concerns over the growth slowdown may become more elevated.”
The Chinese government has taken gradual steps to stabilize the housing market and revitalize consumer demand but has refrained from launching large-scale stimulus packages.
Chinese President Xi Jinping has shifted shifted focus towards high value-added industrial growth to bolster China’s economy amid a three-year property slump that has negatively impacted household consumption and investor confidence.
However, China’s property prices continued to decline in July.
New home prices last month dipped 0.65% month on month, largely unchanged from June’s 0.67% drop, data from the NBS showed.
Secondary market prices in July also fell, slipping by 0.80% over the same period.
“It is increasingly looking like the property market will continue to need more policy support to establish a bottom,” ING’s Song noted.
Focus article by Nurluqman Suratman
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