China's industrial production growth drops to its lowest level in 17 years, other support measures are expected

BEIJING (Reuters) – Growth in China's industrial output reached its lowest level in 17 years in the first two months of the year, and the unemployment rate rose, suggesting further weakness in the second half of the year. large global economy likely to trigger more Beijing support measures.

However, a host of important data on Thursday also showed that real estate investment was picking up, while retail sales were generally weak but stable, suggesting that the economy is not slowing.

China is stepping up aid to the economy, while growth in 2019 is expected to be the lowest in 29 years, but support measures are slow to materialize. Most analysts believe that the activity might not stabilize convincingly before the middle of the year.

Prime Minister Li Keqiang last week announced tax cuts and additional infrastructure spending of several hundred billion dollars, even as officials promised not to resort to massive stimulus packages as the past.

"The latest data should partially quell concerns about a sharp slowdown early in the year. But short-term prospects still seem disappointing, "Capital Economics said in a note.

Capital Economics and others noted in particular that infrastructure investment had not progressed as much as it had hoped since the government began accelerating road and rail projects last year, increasing the risk of rebound less important than expected construction when the work would resume more beautiful Weather.

Under pressure from weak domestic and external demand, Chinese industrial production rose 5.3 percent in January-February, less than expected and at the slowest pace since the start of 2002. Growth is expected to slow 5.5% against 5.7% in December.

China is combining activity data from January and February to try to mitigate the distortions created by the Lunar New Year holidays at the beginning of each year, but some analysts believe that a clearer picture of the health of the The economy may not appear until the first quarter data are released in April.

If seasonal distortion is eliminated, output increases by 6.1 percent in two months, the National Bureau of Statistics said.

China's official factory survey, seasonally adjusted, shows manufacturing output contracted in February for the first time since January 2009.

Last week's data showed that exports fell sharply in February, suggesting that US tariffs on Chinese products and slowing global demand weighed more heavily.

President Donald Trump said on Wednesday that he was in no hurry to conclude a trade pact with China and had insisted that any deal included the protection of intellectual property, a major point of disagreement between the two. parties during months of negotiations.

Job cuts in export-oriented companies led to a rise in the unemployment rate last month, said Li Xiru, an official at the statistics office.

China's survey-based unemployment rate rose from 4.9 percent in December to 5.3 percent in February, although it is below the government's target of 5.5 percent this year.

Many migrant workers also left their jobs to return home before the holidays, said Li.

Reuters announced in January that some factories in Guangdong – China's export hub – had closed earlier than usual before the holidays, and that some should close down, with the trade war reducing orders.

INVESTMENT

Capital investment growth, which was a major growth driver in the past, accelerated to 6.1% in the first two months of this year, a rate slightly higher than analysts expected , up slightly from 5.9% in 2018.

Much of the increase came as housing investment rebounded to a five-year high of 11.6 percent, although home sales fell.

Investments in infrastructure, on which the government relies heavily to revive the economy, grew by 4.3% year on year. But several analysts, including Nomura, said growth momentum may have slowed despite Beijing's influence.

Capital investment by the private sector also fell by 7.5% from 8.7% in 2018. Private investment accounts for about 60% of total investment in China. Beijing has made considerable efforts to reduce financial strains on private companies.

RETAIL WOBBLY

Retail sales were also slightly better than expected, with the overall figure increasing 8.2% in January-February compared to the previous year, in line with December.

However, the growth rate remains stuck at the lowest levels in 15 years, highlighting concerns that consumers are less and less confident about the slowdown in the economy.

Industry data this week show that auto sales in China declined for the eighth consecutive month in February.

In January, the Chinese planner announced measures to stimulate the consumption of goods ranging from green appliances to expensive goods such as cars, but the scale and scope of the subsidy program have not yet been clearly defined.

Thursday's data showed sales of home appliances and furniture slowed significantly earlier in the year, likely due to concerns over the cooling housing market and a 3.6% drop in sales. of houses.

MORE SUPPORT EXPECTED

In addition to fiscal stimulus measures such as increased local government spending and tax cuts, increased support for monetary policy is also expected this year.

The People's Bank of China (PBOC) has already reduced bank reserve requirements five times in the last year, last January. Further reductions are expected starting next quarter to release more funds for loans.

Regulators have ordered large banks to increase their small business loans by more than 30 percent this year, despite the risk of new, impaired loans. Total new bank lending reached a record 3.2 trillion yuan (481 billion US dollars) in January.

The central bank should also continue to steer its borrowing costs down. Sources have however told Reuters that a reduction in benchmark interest rates is seen as a last resort if other measures fail to stem the broader economic downturn.

Even with additional support, China's economic growth is expected to remain at around 6.2 percent this year, compared to 6.6 percent in 2018, according to Reuters polls.

(For a chart on "China's economic trends", click on tmsnrt.rs/2iO9Q6a)