China’s Economy in Trouble as Data Releases For August Miss Forecast
Aiswarya Gopan • 2 min read
Industrial output across China expanded at a slower pace in the month of August than in the previous month as the country battled sporadic COVID-19 outbreaks and imposed restrictions to contain the spread of infections. China’s industrial production rose by 5.3% YoY in August, well below July’s growth of 6.4% and economists’ forecast for a 5.8% growth instead.
In more worrying news for the economy, China’s retail sales increased by 2.5% YoY in August, significantly lower than the previous month when they were up by 8.5% and weaker economists’ expectations for a 7% rise. Consumer demand has been hurt on account of the fresh restrictions and could have a strong impact on slowing down the pace of economic recovery from the coronavirus crisis, which has been one of the fastest in the world.
The Chinese economy is likely to feel the pressure of an easing in growth of fixed asset investment as well. After increasing by 10.3% YoY in the seven months till July, fixed asset investment rose by 8.9% YoY till August so far this year. This figure also came in slightly under economists’ forecast, which was for a 9% growth instead.
Unlike in the previous months when China not only rapidly contained the spread of COVID-19 across its country and bounced back strongly, the delta variant has resulted in numerous outbreaks across various regions, forcing authorities to bring back strict measures to contain the outbreaks. In addition, uneven global economic recovery, rising commodity and raw material costs as well as disruptions to global supply chains have further clouded the outlook for the world’s second most powerful economy.
Impact on the Chinese Yuan
Following the release of these figures, the Chinese yuan saw a sharp slide against the US dollar, sending the USD/CNH currency pair higher. Since then, it continues to hold somewhat steady as investors remain uncertain about China’s economic recovery. At the time of writing, USD/CNH is trading at around $6.43.