April 26, 2022

Chart of the week: Consumer headwinds in China

by Fathom Consulting.

Retail sales growth has been in long-term decline in China. Efforts to rebalance China’s economy towards a more consumer-oriented growth model have met with little success.  A recent resurgence of cases of COVID-19 has helped to leave the consumer side of the economy looking particularly weak. Retail sales returned to contractionary territory, falling by 3.5% on a twelve-month basis in March, after increasing 6.7% on a similar basis in the January-February period. Significant weakness was evident in catering services, which fell 16.4% amid the sharp spike in virus cases. Automobile sales were 7.5% lower than a year earlier. With virus cases and lockdowns increasing in April, the near-term outlook looks bleak for households. Indeed, the urban unemployment rate has increased by 0.7 percentage points this year to 5.8% in March, and wage growth slowed sharply in 2022 Q1. Amid a slowing economy, the Chinese authorities have been enacting measures to support growth, although there has been a lack of emphasis on boosting consumer spending. Without a meaningful shift to a more consumer-oriented economic model, trend growth will continue to slow and China will struggle to catch up with the US.

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