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02 June 2024 / Report
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Copy LinkGrowth in retail sales decelerated to 2.3% year-on-year in April, down from 3.1% in March. Behind this moderation is last year’s high base of comparison and the fading of pent-up demand that was released in Q1. Overall growth in retail sales of goods and services has continued to weaken, driven by softening demand and weak consumption.
Looking at big-ticket spending, the volume of passenger vehicles sold remained robust in April, thanks to ongoing government policy support and aggressive price cuts by car companies. Conversely, the property sector continues its downturn despite increasing government support measures. For instance, in May authorities lowered downpayment ratios for home purchases nationwide. They also announced a RMB 300 billion (USD 41 billion) relending program to finance local governments’ purchasing of unsold residential units and their conversion into affordable housing. Whether this move to absorb existing housing stock will help restore market confidence remains to be seen.
The labor market remains under pressure. China’s headline unemployment rate improved marginally in April. Despite this, the employment subindices for the manufacturing, non-manufacturing, service, and construction PMIs remained in contractionary territory, indicating that hiring intentions remain weak. Looking at different age groups, unemployment amongst young professionals (i.e. 16-29 years) remains substantially higher than other groups.
Looking ahead, we expect consumption growth to remain moderate. The softening of demand that we are seeing in the Chinese market is underpinned by deep-rooted structural imbalances that will take time to address, such as strengthening the social safety net. This is why consumer confidence has remained persistently weak despite the measures that authorities have taken over the past couple of years to support growth. For this reason, while the “old-for-new” trading plan that authorities recently launched will help drive some consumption (e.g. cars and white goods), it is unlikely to have a lasting effect.
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