China’s interest rate cut signals ‘policy easing’ as July retail sales, industrial output fall short of estimates

Central bank moves to give China’s economy a shot in the arm with 10-basis-point cut to one-year medium-term lending facility for the first time since mid-January

Major data points for retail sales and fixed-asset investment saw growth in July, but the level was down from June and results failed to meet analysts’ expectations

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China’s retail sales rose by 2.7 per cent in July, well below an expected rise of 5.3 per cent and down from 3.1 per cent growth in June. Photo: Bloomberg

Published: 10:08am, 15 Aug 2022Updated: 10:58am, 16 Aug 2022

The retreat of China’s major economic parameters last month may have poured cold water on Beijing’s hope that the recovery momentum would be consolidated and that growth will get back on track in the third quarter, forcing policymakers to step up the use of stabilisation tools.

The economic data, which largely fell short of market expectations on Monday, highlights the uncertainties lying ahead for the world’s second-largest economy in the face of coronavirus outbreaks, deeper property-market adjustments, possible stagflation in the global economy, and an intensifying rivalry with the United States.

With China’s central bank cutting a major policy interest rate by 10 basis points on Monday – the first cut since mid-January – analysts are expecting Beijing to use price tools, coupled with a credit boost and infrastructure push, to quickly drive up domestic demand before a leadership reshuffling at this autumn’s 20th Party Congress.

The impact of the stimulus rolled out in May-June has proved weaker than expected, prompting policymakers to step up policy easing

Larry Hu, Macquarie Group

Industrial production, a gauge of activity in the manufacturing, mining and utilities sectors, rose by 3.8 per cent in July, year on year, the National Bureau of Statistics (NBS) said on Monday. It was down slightly from 3.9 per cent growth in June.

Retail sales rose by 2.7 per cent in July, well below an expected rise of 5.3 per cent and down from 3.1 per cent growth in June.

The urban surveyed jobless rate, an imperfect measurement of unemployment in China that does not include figures for all of the nation’s tens of millions of migrant workers, stood at 5.4 per cent in July from 5.5 per cent in June. The jobless rate for the 16-24 age group set another record high at 19.9 per cent last month.

“The impact of the stimulus rolled out in May-June has proved weaker than expected, prompting policymakers to step up policy easing,” said Larry Hu, chief China economist with Macquarie Group.