C Central Banks

China’s Economic Recovery Challenges Spur Calls for PBOC Action

16 May, 2023

China’s economic recovery, which initially showed signs of strength in consumer and business activity, is now facing hurdles as the momentum starts to fade. Recent data reveals slower-than-expected growth in industrial output, retail sales, and fixed investment, raising concerns about the country’s economic rebound.

Challenges in the Labor Market

One major concern is the surge in the unemployment rate for young people, reaching a record high of 20.4%. This indicates that the post-pandemic recovery is not robust enough to absorb the influx of new entrants into the labor market. The overall urban unemployment rate, however, decreased to 5.2%, reflecting a tightening labor market.

Signs of a Weakening Recovery

China’s industrial output in April grew by 5.6% compared to the previous year, falling short of expectations. Retail sales, a key indicator of consumption, increased by 18.4%, but this growth also missed forecasts. Growth in fixed asset investment slowed to 4.7% in the first four months of the year, compared to 5.1% in 1Q and expectations for a 5.7% rise. The decline in property investment further adds to concerns about the country’s economic outlook. The figures are influenced by the low base of comparison from last year when strict anti-virus lockdowns were in place.

Policy Measures and Economic Outlook

The disappointing data underscore the challenges of sustaining economic growth after restarting it. In this context, economists emphasize the need for additional policy support to prevent a downward. The central bank is expected to introduce further monetary easing measures in the coming months to support the economy. Shrinking imports, factory gate deflation, and weak domestic demand contribute to the urgency for policy actions.

China’s economic recovery is facing headwinds as the initial momentum subsides. Slower-than-expected growth in industrial output and retail sales, coupled with concerns over the labor market and a weak property market, underscore the need for additional policy measures to sustain the recovery. Policymakers are expected to introduce further monetary easing to bolster the economy and address challenges in domestic and global growth