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Is China’s stimulus package finally working? Retail sales and industrial output grow

by admin November 15, 2024
November 15, 2024
Is China’s stimulus package finally working? Retail sales and industrial output grow

China’s economy displayed promising signs of recovery in October, supported by an uptick in retail sales and industrial output.

These improvements reflect the impact of recent government stimulus measures aimed at revitalizing growth in key sectors.

According to the National Bureau of Statistics, retail sales grew by 4.8% from the previous year, marking the fastest pace since February and surpassing analysts’ expectations.

This is a critical indication of recovery in consumer spending, which had lagged behind production growth amid economic uncertainties.

Industrial output rose 5.3%, lower than forecast. However, Chinese steel production saw a notable recovery in October, ending four months of consecutive declines.

Retail sales growth attributed to stimulus measures

The increase in retail sales can be attributed to Beijing’s comprehensive stimulus strategies, which have included subsidizing the purchase of equipment, appliances, and vehicles.

This push to stimulate consumption helped home appliance sales skyrocket by 39% compared to the same period last year—the most significant growth seen since 2010.

The improved sales figures signal a resurgence in domestic consumer activity, an area that has been a weak link in China’s post-pandemic economic recovery.

Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd., said in a Bloomberg report, “The policymakers will be pleased to see the rally in retail sales. They’d rather sacrifice a bit of factory activity for consumption, although it is still early to tell whether the two-speed economy has ended.”

Industrial sector shows improvement

In addition to retail, industrial output rose by 5.3% in October, though it came in slightly below forecasts.

The growth signals stabilization in the manufacturing sector, buoyed by healthy margins that encouraged increased steel production.

Steel output, which had been declining for four consecutive months, rebounded by 6.2% compared to September, reaching 81.88 million tons.

This marked a 2.9% year-over-year increase, underscoring a positive shift in sentiment following state-led efforts to stimulate economic momentum.

The rebound has allowed the cumulative decline in steel production for the first ten months of the year to narrow to 3%, maintaining the industry’s trajectory toward surpassing 1 billion tons of output for the fifth year running.

However, analysts remain cautious about long-term prospects as some mills continue to face financial difficulties, and demand from the property sector—a traditional driver of steel consumption—remains subdued.

Recovery encouraging, but don’t celebrate yet

Despite these signs of recovery, Beijing faces challenges in sustaining growth, especially with weak domestic demand and an uncertain global landscape.

The National Bureau of Statistics noted, “We should be aware that the external environment is increasingly complicated and severe, effective demands are still weak at home and the foundation for continuous economic recovery needs to be strengthened.”

Further compounding concerns is the recent re-election of Donald Trump as US president, which could usher in more aggressive trade policies.

Trump has already threatened to impose a 60% tariff on most Chinese imports, posing a potential risk to China’s export-driven industries.

This could put added pressure on Beijing to enhance domestic consumption as a counterbalance to potential export setbacks.

Steel’s long-term outlook remains grim

Although October’s industrial recovery points to short-term gains, the steel industry’s long-term outlook remains precarious.

The China Iron and Steel Association has urged steelmakers to maintain production discipline despite rising prices, cautioning that structural market issues persist.

While government officials have indicated there is room for additional stimulus measures in the coming year, analysts believe these efforts might not be enough to revive demand from sectors like property development and large-scale infrastructure—key pillars that have historically fueled steel production.

Beijing’s ongoing commitment to policies that stimulate growth, such as consumer subsidies and targeted fiscal measures, will be critical to ensuring that the economic recovery is robust and sustainable.

The current signs of improvement are encouraging, but the path forward will likely require continued vigilance and strategic policy adjustments.

The post Is China’s stimulus package finally working? Retail sales and industrial output grow appeared first on Invezz

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