China’s consumer-driven recovery is showing more signs of losing momentum as spending slows on everything from holiday travel to vehicles and homes, adding to expectations for more stimulus to support the economy.
Domestic travel spending during the Dragon Boat Festival holiday was lower than pre-COVID-19 pandemic levels, according to official data released over the weekend.
Home sales are below the level in previous years, while estimates for this month’s vehicle sales showed a drop from a year earlier.
Photo: Bloomberg
The rebound in consumption after China shed its COVID-19 controls has propelled growth so far this year, but confidence is weak and evidence is mounting that the economy might need more help.
After the central bank cut policy rates earlier this month, economists raised their expectations for more monetary and fiscal stimulus, and state-run media outlets have also published a series of articles highlighting possible avenues of support.
The holiday tourism data pointed to “fading post-COVID recovery momentum for in-person services,” Nomura Holdings Ltd chief China economist Lu Ting (陸挺) wrote in a research note on Sunday.
He noted the average spending per trip was about 16 percent lower than in 2019, “implying either a weaker intention to spend or less purchasing power.”
“As pent-up demand fades and the risk of an economic double-dip becomes more real in coming months, we expect in-person services consumption growth to weaken further,” Lu wrote.
Not all of the data suggests a slowdown, with box office revenue reaching the second-highest amount on record for the Dragon Boat Festival, Xinhua news agency reported.
However, other indicators provide evidence that spending is not gaining momentum.
Home sales in major cities were muted through the first few weeks of this month and over the holiday period, the 21st Century Business Herald reported, citing research analysts.
Passenger vehicle sales this month are expected to have dropped 5.9 percent from the same month last year, according to preliminary estimates released by China’s Passenger Car Association on Sunday.
Growing concerns over growth have fueled speculation about the possibility of increased stimulus this year.
Wang Huning (王滬寧) — the No. 4 official in the ruling Chinese Communist Party — last week held a meeting to discuss policy suggestions for reviving consumption. Then yesterday, two state-run securities newspapers floated a series of suggestions from analysts on policy options Beijing could consider.
One fiscal measure would be to accelerate the sale of special local government bonds — a key source of infrastructure funding — so that local authorities use most of their quota by the end of the third quarter, the China Securities Journal reported.
Meanwhile, Shanghai Securities News reported that further monetary easing — including cuts to interest rates and the amount of cash banks need to keep in reserve — is likely in the second half of the year.
However, any stimulus is unlikely to be large in scale, S&P Global Ratings chief economist for Asia-Pacific Louis Kuijs said.
The firm cut its forecast for China’s GDP growth this year to 5.2 percent from 5.5 percent, citing the uneven recovery.
The government could still consider measures like easing housing purchasing restrictions and mortgage down-payment requirements, along with possible “fiscal support for consumption,” Kuijs wrote in a report on Sunday.
While the “recovery in consumer confidence is slow,” some retail sales and discretionary spending data has held up, suggesting an expansion through the rest of this year and into next year, he said.
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