China’s industrial production and retail sales were broadly in line with forecasts in July, but fixed asset investment unexpectedly fell as the recession in real estate investment deepened, UOB Group economist Ho Woei Chen noted.

Uneven growth in July amid tender retail sales

“Industrial production and retail sales in China were broadly in line with consensus forecasts, but fixed asset investment unexpectedly slowed and surveyed unemployment rates rose in July. The real estate market remained on a downward trend, with prices, residential property sales values ​​and real estate investment continuing to decline.”

“Although loan demand tends to soften seasonally in July, the below-normal data further fueled concerns about a balance sheet recession in China, where monetary easing is losing its effectiveness in boosting demand amid weak sentiment.”

“There is room for a further cut in the LPR next week (August 20) to reflect a larger-than-usual 20 basis point cut in the 1-year MLF on July 25. In the near term, there is also the possibility of a 50 basis point cut in the reserve requirement ratio (RRR). The tender data also points to the need for stronger fiscal measures to boost private consumption. Given the mixed overall picture, we expect China’s economic growth to stabilize from 5.0% in 1H24 to 4.8% in 2H24, with full-year GDP growth likely to be 4.9%.