China’s post-COVID-19 growth momentum is fading and youth unemployment is at a record high, pointing to a bumpy recovery in China, which is expected to drive global growth.
According to data released by China’s National Bureau of Statistics on Tuesday, a series of economic indicators in April, including total retail sales of social consumer goods, value added of industries above designated size and investment in fixed assets, all fell short of economists’ expectations. Investment in China’s real estate sector also fell in the first four months of this year.
Among the standout figures was the urban surveyed unemployment rate for workers aged 16-24, which rose to a record high of 20.4% in April. That unemployment rate stood at 16.7% at the end of last year and has risen steadily since then.
Taken together, the data suggest that growth momentum in the world‘s second-largest economy is slowing, adding to uncertainty for a global economy already grappling with banking turmoil, high inflation and the fallout from the Ukraine war. The data comes amid mounting evidence that China’s recovery will not be as powerful a boost to global growth as it has been in the past.
So far, the recovery has been largely fueled by a surge in pent-up demand for travel, dining out and other services after China lifted nearly three years of strict containment measures late last year. While China’s economy remains largely on track, some economists say it’s unclear how sustainable such a rebound is. Debt burdens and a struggling housing market are weighing on growth, and the recovery remains uneven, with segments of the population excluded.
Economists are paying particular attention to the state of the labor market, which is an important determinant of consumer confidence after three years of epidemic containment measures and travel restrictions have dampened people’s willingness to go out and spend.
Persistently high unemployment among younger generations has also fueled concerns about social instability at home as tensions between China and Western countries led by the United States have intensified. China’s youth unemployment rate has been two to three times higher than the national urban survey unemployment rate and has not fallen below 15% since late 2021.
While many economists have recently raised their forecasts for China’s economic growth for the full year to nearly 6 percent this year, surpassing the roughly 5 percent growth target set by government policymakers in March, they have expressed doubts about whether Beijing will Divided on a rate cut in the near term.
Lu Ting, chief China economist at Nomura, told clients in a research note on Tuesday that the risk of a downward spiral in China had risen, predicting that benchmark lending rates could be cut in the second half of this year.
Tommy Wu, an economist at Commerzbank, said the weaker-than-expected economic report opened the door for further policy easing at a time when China’s economy faces a slack labor market and rising risks of deflation.
Bruce Pang, chief economist for Greater China at Jones Lang LaSalle, said that while China may use some stimulus, the central bank may have to hold off on plans to ease monetary policy, partly because of concerns Asset bubbles inflate. The weaker-than-expected data released on Tuesday showed how difficult it is to keep the growth engine running after restarting it, Pang said.
On Monday, the People’s Bank of China kept interest rates unchanged for the ninth straight month. Meanwhile, the central bank issued a statement saying that China was not experiencing deflation, although it acknowledged weak demand was keeping inflation low.
The People’s Bank of China stated that the “scar effect” of the new crown epidemic has not subsided, residents’ income expectations are still recovering, young people are under greater employment pressure, and the sustainability of consumption recovery momentum is facing challenges.
Excitement sparked by the government’s abrupt lifting of strict coronavirus-prevention rules late last year led to a surge in spending on services. But in April, the services spending spree appeared to have run out of steam.
Although the total retail sales of social consumer goods, which represents the consumption situation, surged by 18.4% year-on-year in April, such a high growth rate was mainly due to the low comparison base in the same period last year. confidence of consumers across the country.
The result was also lower than the 20.5% growth forecast by economists polled by The Wall Street Journal. According to the National Bureau of Statistics of China, the total retail sales of consumer goods in April increased by only 0.5% month-on-month.
Spending on services has been the main driver of the recovery, while spending on goods has lagged. Data on Tuesday showed that split continued in April, with sales of household appliances, furniture and other goods remaining subdued, while consumption in the restaurant industry continued to gain momentum.
Factory activity also disappointed, with industrial production falling 0.5% month-on-month in April, reflecting weak export demand as retailers in Western countries cut new orders amid rising inflation.
Growth in fixed-asset investment, which includes manufacturing, real estate and infrastructure, unexpectedly slowed in April, with private fixed-asset investment rising just 0.4% in the first four months of this year, a further slowdown from last year’s meager 0.9% growth rate.
From January to April this year, the national fixed asset investment excluding rural households increased by 4.7% year-on-year, a slowdown from 5.1% in January-March, and also lower than the 5.3% expected by economists surveyed by the Wall Street Journal. speed up.
The real estate sector continues to be a drag on the economy, with the sector suffering a sharp pullback through most of 2022. From January to April this year, the national real estate development investment fell by 6.2% year-on-year, and the decline was wider than the 5.8% drop in the first quarter.
In the labor market, China’s urban surveyed unemployment rate fell for the third straight month, falling to 5.2% in April, the lowest level since late 2021. However, Louise Loo, a China economist at Oxford Economics, said the good news was overshadowed by a fourth straight month of rising youth unemployment. Before the pandemic, youth made up nearly 40 percent of employment in the services sector.
Lu Zihui said that to some extent, we believe that the economic recovery is driven by the service industry, but the fact that the youth unemployment rate has reached 20% does indicate that this recovery momentum will not last.
Fu Linghui, a spokesman for China’s National Bureau of Statistics, said on Tuesday that the number of college graduates this summer may hit a new high, and that “continued efforts are still needed to stabilize and expand youth employment.”
Part of the reason is a mismatch in the job market. Factories in China have struggled to recruit young workers, and many young graduates are reluctant to take blue-collar jobs.
In Beijing, Yao Jiaoqing quit her job as a barista at a cafe last month because she could no longer bear the drudgery that paid less than 3,000 yuan ($431) a month.
After graduating in 2018, Yao has worked in both the telecommunications and online travel industries. The 27-year-old said she quit the jobs because she felt it was too tiring to be a cog in a big company. She finds a job in a coffee shop attractive, where overtime is not required.
Yao said, based on the situation of people in her situation, she estimated that youth unemployment may be higher than official figures suggest.
She said that looking at friends of similar age around her, almost one-third of them are not working now, and she just wants to lie flat.