A Testing Time for Policymakers: China’s Economic Recovery Slows Down

China’s April economic data exhibited an inconsistent recovery trajectory from the effects of stringent COVID-19 restrictions, falling short of economists’ expectations. According to a Reuters poll, Industrial production increased by 5.6% year-on-year, a stark contrast to the anticipated 10.9% rise. In comparison, the figure was up by 3.9% in March.

Retail sales witnessed an 18.4% rise, not reaching the predicted surge of 21%. Moreover, fixed asset investment also saw a less than anticipated increase of 4.7%, as opposed to the expected 5.5%.

Market Recovery and Investor Expectations

Despite the positive numbers indicating recovery, they are not sufficient to meet investors’ expectations, according to Winnie Wu, a China equity strategist at BofA Securities. She suggested that the momentum from China’s pent-up demand appears to be dwindling. “The recovery of income, of job security, and confidence will take time,” she said.

Chinese Stock Market Performance

The shaky recovery has also impacted the Chinese stock market. The Shenzhen Component was down 4.67% quarter-to-date, up only 1.48% year-to-date, and has dropped 9.5% from its peak in February.

Manufacturing and Import-Export Data

Further complicating the recovery picture, the Caixin China general manufacturing purchasing managers’ index fell to 49.5 in April, marking the first reading below the 50-mark in three months. The National Bureau of Statistics’ manufacturing PMI also fell to 49.2 in April from March’s reading of 51.9.

Imports for the month also plunged further by 7.9%, missing estimates, although exports rose by 8.5%. Goldman Sachs economist Hui Shan highlighted the weak market sentiment, anticipating additional governmental measures to boost confidence.

Youth Unemployment Reaches a Record High

Another alarming finding in the latest data is a 20.4% youth jobless rate, the highest ever unemployment rate between ages 16 and 24. This trend raises questions about future consumption recovery, as job security and income are fundamental for consumer confidence.

Policymakers’ Response

In response to the economic challenges, Citi economists expect the government to shift from a passive stance to proactive easing, with a possible 20bps policy rate cut in the remainder of the year.

As China faces these economic hurdles, the pressure for policymakers to bolster the recovery process intensifies. The country now finds itself grappling with how to navigate an uncertain economic landscape and mend the fractures left by the pandemic.