China’s retail sales fall for first time since 2022 as domestic demand weakens – Firstpost

China’s retail sales fell for the first time in more than three years in May, highlighting growing strains on domestic demand even as industrial output exceeded expectations and exports remained resilient.

Data released by the National Bureau of Statistics (NBS) on Tuesday showed retail sales, a key measure of consumer spending, declined 0.6 per cent year-on-year in May, reversing April’s 0.2 per cent increase. The reading was weaker than economists’ expectations for flat growth and marked the first contraction since December 2022.

The figures underscore a widening divergence within the world’s second-largest economy, where strong manufacturing activity and export growth continue to contrast sharply with weak household consumption and a prolonged property sector downturn.

Factory output and exports remain strong

Industrial output rose 4.5 per cent in May from a year earlier, accelerating from April’s 4.1 per cent growth and beating analysts’ forecasts of a 4.3 per cent increase. China’s manufacturers have benefited from a surge in global investment tied to artificial intelligence technologies, helping offset concerns that geopolitical tensions and trade disruptions would weigh on exports.

Exports surged 19.4 per cent in May, but the strength of overseas demand has yet to translate into stronger spending at home.

Consumer spending loses momentum

The weakness in consumption was particularly visible in the automobile sector, where domestic car sales declined for an eighth consecutive month. Analysts say soft household confidence, sluggish income growth and concerns about job security continue to discourage major purchases.

Even the five-day Labour Day holiday failed to provide a meaningful boost to consumer activity. Economists noted that the impact of Beijing’s consumer goods trade-in programme appears to be fading after providing temporary support earlier in the year.

The latest data reinforce concerns about a two-speed economy in China. While export-oriented industries and advanced manufacturing sectors continue to expand, domestic demand remains under pressure from falling property prices and weak consumer confidence.

Investment and property sector remain under pressure

Investment activity also deteriorated sharply. Fixed-asset investment fell 4.1 per cent in the first five months of the year, worsening from a 1.6 per cent decline recorded during January-April and missing expectations for a 2 per cent contraction.

The property sector, a major drag on economic growth for several years, showed little sign of stabilisation. Property investment declined 16.2 per cent in the January-May period, compared with a 13.7 per cent fall in the first four months of the year. New home prices also continued to decline on a monthly basis, with the pace of declines accelerating slightly in May.

Recent lending data further highlighted the challenges facing the housing market. Household borrowing remained subdued as consumers stayed reluctant to take on mortgages amid uncertain employment prospects and weak income growth.

Inflation signals economic imbalance

Inflation indicators pointed to continued imbalances in the economy. Factory-gate inflation climbed to its highest level since July 2022, reflecting stronger industrial activity and rising production costs. However, consumer inflation remained largely stagnant, suggesting household demand has not kept pace with supply-side growth.

Policymakers face growing pressure

The nationwide survey-based unemployment rate eased marginally to 5.1 per cent in May from 5.2 per cent in April. However, concerns over job security and the growing impact of artificial intelligence on employment continue to weigh on consumer sentiment.

The latest figures are likely to increase pressure on Chinese policymakers to introduce additional measures to support household spending and stabilise the property market as authorities seek to sustain growth in the face of persistent domestic headwinds.