Data out of China over the weekend suggest that the economic slowdown is deepening in the world’s second largest economy, thereby increasing the chance of more stimulus.
On Sunday, data showed China’s factory output and fixed-asset investment were both weaker-than-expected in August. While retail sales were the bright spot, overall it could be seen that the Chinese economy faces headwinds and that the foundation for high economic growth is not solid. This puts pressure on the government to seek further stimulus measures.
Industrial output rose 6.1% in August on a year-on-year basis, missing estimates of a 6.6% gain. However, last month’s number was higher than July’s 6.0% increase.
Other data showed that investment rose at the slowest pace in 15 years, indicating that overall investor sentiment remains weak. Fixed-asset investment slowed to 10.9% since the beginning of 2015 until August, compared with 11.2% in the January to July period and missed estimates for a 11.1% rise. Fixed investment is one of the critical drivers of China’s economy.
Retail sales numbers were more optimistic, as they increased by a better-than-expected 10.8% year-over-year in August, which was faster than the 10.5% year-over-year increase in July.
The Beijing government has taken measures recently to further stimulate the sluggish economy but downward pressure on industries appears to still be relatively big. This means the economy still faces hurdles in reaching its growth target of 7%. China’s central bank may have to continue cutting interest rates and the country’s banks’ reserve requirement. The disappointing data comes after soft inflation data released recently, which raises the chances that third-quarter economic growth may dip below 7% for the first time since 2008.
Global markets were rattled in recent weeks amid concerns that the slowdown in China could be worsening. There was a massive selloff last month, especially in regional markets. Although the panic selling eased somewhat this month, Sunday’s weak data may raise fresh concerns about the health of China’s economy.
The Shanghai Composite Index closed down 2.7% on Monday in reaction to the data.