China posted a surprise slowdown in business activity in August, a sign that rising borrowing costs and property restrictions are having a more severe effect on the economy than expected.
Value-added industrial output, a rough proxy for economic growth, slowed for a second straight month, rising 6.0% in August, compared with a 6.4% increase in July, the National Bureau of Statistics said Thursday. The increase came in lower than the median forecast of 6.6% growth from a poll of economists.
In a potentially even more ominous sign, growth in investments was the slowest in almost 18 years.
Officials blamed August’s slowdown on bad weather but economists say a clampdown on credit, a cooling property market and waning effects from previous stimulus measures may have all dampened domestic demand.
“Today’s data are indeed below our expectations. It shows that China’s domestic demand may not be as strong as previous economic indicators suggest,” said Tommy Xie, an economist at OCBC.
Recent gains in commodities prices and industrial inflation weren’t a result of stronger demand, but reduced supplies, Mr. Xie said.
Fixed-asset investment outside rural households–a key gauge of construction activity–climbed 7.8% in the first eight months of 2017 from a year earlier, moderating from an 8.3% increase over the January-July period. The rise in fixed-asset investment was below economists’ median forecast for an 8.2% gain.
It was the first time since late 1999 that investment growth fell below 8%, according to data provider Wind Information. Growth in retail sales–which has been a resilient segment of the economy–also slowed to 10.1% from July’s 10.4%.
China’s housing sales growth in August was the slowest in over two years, though developers kept building at a steady rate, official data showed Thursday.
China’s economy expanded 6.9% in the first half of the year, well above Beijing’s growth target for the year. The stellar performance even triggered optimism among some state researchers that China’s growth had bottomed out, though many economists expect the momentum won’t last.
However, economists hadn’t expected such a notable slowdown already in August, ahead of a high-profile, twice-a-decade leadership reshuffle.
Prices in China’s government-bond futures surged following the data release, reflecting a demand for safe-haven investments amid the uncertain economic outlook.
“Further slowdown in the second half is expected if no policy efforts are made,” said Xindong Chen, an economist at BNP Paribas.
Chinese leaders are trying to guide the economy toward more sustainable, if slower, growth. But the government still needs to support growth to prevent it from slipping too quickly, with measures such as ramping up infrastructure investment projects, Mr. Chen said.
Also, policy makers appeared to have intervened in the foreign-exchange market to support export growth, said Li-gang Liu, an economist at Citi Group.
Source: Dow Jones