Main takeaways: After a ray of light in the first quarter, China’s April data set released overnight threw a bit of cold water on recent signs of improvement in domestic demand. Retail sales growth has fallen to a three-year low, and the housing market remains weak. Industrial production and investments were also disappointed. Weak domestic demand highlights the importance of exports as the sole driver of growth at the present time. With the Iranian war increasing downside risks to global growth, this engine may soon start to slow. The renewed weakness in retail sales may be related to uncertainty caused by the Iran war and calls for intensified economic stimulus. Strong first-quarter GDP of 5% year-on-year gave some support to achieving the government’s growth target of between 4.5% and 5%, but the renewed decline in activity should be a concern in Beijing.
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Retail sales fell from 1.7% y/y to 0.2% y/y (consensus 1.9% y/y). The seasonally adjusted level also showed a significant decline month-on-month after a rise in March gave some hopes of improvement. However, employment indicators are showing some improvement, which should provide support to consumers.
Housing remains weak, and the rays of light we have witnessed in the past months remain so far just rays. Home sales have not stabilized broadly (Chart 2) despite some increases in major cities. Construction starts also fell and real estate investments fell by 13.7% year-on-year in April after falling by 11.2% year-on-year in March. Home prices are where you could see some rays of light as prices continue to fall (Chart 6).
Industrial production fell from 5.7% on an annual basis to 4.1% on an annual basis. It conflicts with decent activity signals from April’s Purchasing Managers’ Index (PMI) statistics, so it’s not clear whether this is noise or a real deterioration. Total investment growth declined to -1.6% on an annual basis since the beginning of the year, compared to 1.7% on an annual basis since the beginning of the year in March.
The official unemployment rate fell from 5.4% to 5.2%, but is moving widely sideways in seasonally adjusted terms. However, employment surveys have shown improvement over the past six months (Chart 12).
