China's economic recovery has shown signs of slowing down as growth in both the industrial and retail sectors weakened in May. The latest figures, released by the National Bureau of Statistics, have put pressure on policymakers to consider increasing stimulus measures to boost the country's economy.
According to the statistics, industrial production in China rose by 3.5% in May compared to the same period last year, which is in line with economists' expectations. However, retail sales only climbed by 12.7%, missing the median estimate of a 13.7% increase. Meanwhile, growth in fixed-asset investment slowed to 4% in the first five months of the year, weaker than the expected 4.4% uptick.
The faltering recovery has been attributed to several headwinds, including weak business and consumer confidence, a faltering property market, and slowing global demand for exports. China's economy also faces disruption due to the ongoing covid-19 pandemic.
As a result of the worrying economic data, the People's Bank of China has cut the interest rate on its one-year policy loans by 10 basis points to 2.65%, signaling a shift to easing mode. The central bank has also reduced its short-term rates earlier this week.
Economists predict that more monetary policy stimulus measures, such as interest-rate cuts or reductions in the amount of cash banks have to keep in reserve, will be implemented in the coming months. Additionally, authorities are said to be considering a broad package of stimulus measures to support areas such as real estate and domestic demand, with plans to discuss these policies as early as Friday in a State Council meeting.
Overall, the latest economic data suggests that China's economic recovery has lost momentum after an initial boost in activity in the first quarter following the lifting of pandemic restrictions. With ongoing challenges to overcome, policymakers will need to act quickly to prevent further economic setbacks and support the country's path towards recovery.