Key takeaways: After rays of light in Q1, the Chinese data batch for April released overnight threw a bit of cold water on the recent signs of improvement in domestic demand. Retail sales growth dropped to a three-year low and the housing market continues to be weak. Industrial production and investments also disappointed. The weak domestic demand highlights the importance of exports as the only growth engine currently. With rising downside risks to global growth due to the Iran war, this engine could start to sputter soon. The renewed weakness in retail sales may be related to the uncertainty from the Iran war and calls for a step-up in economic stimulus. A strong GDP in Q1 of 5% y/y gave some cushion to meet the government’s 4½-5% growth target but the renewed decline in activity should be a concern in Beijing.
Details
Retail sales dropped from 1.7% y/y to 0.2% y/y (consensus 1.9% y/y). The seasonally adjusted level also showed a big m/m decline after a move higher in March gave some hopes of improvement. Employment indicators show some improvement, though, which should give support to consumers.
Housing remains weak and the rays of light seen in the past months so far remains to be only rays. Home sales have not stabilized on a broad-based level (chart 2) despite some lift in the big cities. Construction starts also trend lower still and property investments declined 13.7% y/y ytd in April after falling 11.2% y/y ytd in March. Home prices are where you spot some rays of light as price declines keep easing (chart 6).
Industrial production declined from 5.7% y/y to 4.1% y/y. It is at odds with decent activity signals from the PMI statistics in April so it is not clear if it is noise or a real deterioration. Overall investment growth weakened to -1.6% y/y ytd coming from 1.7% y/y ytd in March.
The official unemployment rate declined from 5.4% to 5.2% but in seasonally adjusted terms it is moving broadly sideways. However, employment surveys have showed improvement over the past six months (chart 12).
