China’s economic activity slowed more than expected in July, with fresh virus outbreaks adding new risks to a recovery already hit by floods and faltering global demand.
All the main data missed forecasts: retail sales expanded 8.5% in July from a year earlier, lower than the 10.9% predicted by economists; industrial output increased 6.4% versus the median estimate of 7.9%; fixed-asset investment grew 10.3% in the first seven months of the year, compared with a forecast of 11.3%. The unemployment rate rose to 5.1%.
China’s slowdown adds to signs the global recovery is faltering. U.S. consumer confidence fell in early August to the lowest level in nearly a decade as Americans grew more concerned about the economy’s prospects, inflation and the recent surge in coronavirus cases. Real-time data already show Asia’s economies are taking a hit as consumers curb spending and supply chains are disrupted.
“July’s data suggest the economy is losing steam very fast,” said Raymond Yeung, chief economist for Greater China at Australia and New Zealand Banking Group. “The resurgence of delta also adds extra risk to August’s activities.”
On a two-year average basis, which strips out statistical distortions from last year’s pandemic shutdowns, the data show a notable slowdown across the board in China.
The most widespread virus outbreaks in China since last year are weighing on an economic recovery that was already starting to soften into the second half of the year. Although the absolute numbers are small compared to other nations such as the U.S., the new virus cases in China since mid-July prompted yet another round of targeted lockdowns, travel curbs and mass testing across the country.
Consumption, especially of services, is taking a knock from the targeted lockdowns. Authorities rushed to close tourist sites, call off cultural events and cancel flights during the peak holiday season to contain the virus outbreaks.
The government’s aggressive moves to achieve a goal of zero COVID-19 infections could prove economically costly. Financial institutions like Nomura Holdings Inc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. have already cut their growth projections for the third quarter and full year. The government has set a modest growth target of above 6% for this year.