China's Economy Losing Momentum: Economists

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Highly anticipated data out of China reveals a slowdown in momentum with economists saying further easing will be needed to keep growth rates propped up.

Retail sales grew an impressive 18.4% year-on-year, but this undershot expectations for 21% and is largely down to base effects owing to Covid lockdowns.

"Much of the rebound stems from easy base effects compared to last April when Shanghai and other cities were largely shut down," says Nathan Chow, Senior Economist at DBS Bank.

Industrial production rebounded at 5.6%, up from 3.9% in March, but this was a significant undershoot against economist expectations for a reading of 10.9%.

Image courtesy of DBS.

"China's April data largely missed expectations which increased concerns that its economic recovery momentum has failed to sustain," says Ho Woei Chen, Economist at United Overseas Bank (UOB).

Indeed, on a month-on-month basis, industrial production contracted 0.5% in April compared to March.

The undershoot in activity underscore a recent downtrend in commodity prices which has impacted commodity-linked currencies, such as the Australian Dollar.

"Copper extends losses as China continues to disappoint," says John Meyer, an analyst at brokerage SP Angel. "Factory output in China slid in April, with manufacturers struggling from both international and domestic weakness."

The commodity complex can expect better support when the Chinese economy starts to accelerate, but for now, economists are cautious.

"Market’s expectations of the rebound in China may need to be toned down as the slowdown in external demand is exerting a far greater downside pressure on China," says Chen.

The UOB economist says the latest data confirms China is still undergoing a property market downturn which continues to hamper investment and keep consumer sentiment soft.

UOB expects the People's Bank of China (PBoC) to ease conditions via another RRR cut at some point, in order to shore up activity.

DBS says although the PBoC kept its key rate unchanged this month it still has tools at its disposal to keep monetary conditions accommodative.

"By lowering banks' deposit rate ceilings recently, the PBOC has reduced lenders' liability costs," says Chow. "This creates room for banks to cut loan prime rates in the coming months."