Slowing Chinese economic activity to continue in Aug

Slowing Chinese economic activity to continue in Aug

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  • Economic slowdown is expected to continue in August amid more floods and tighter social distancing measures as the Covid-19 Delta variant spreads in the country
  • Strict social distancing measures have affected the ports in Ningbo and Shanghai, and will negatively affect import and export activity 
  • The chip shortage is likely to linger for at least two years, which will gradually be reflected in slower production growth and related exports

China saw slower growth in economic activity in July mainly as a result of flooding, and this slowdown is expected to continue in August as more floods and tighter social distancing measures affecting port operations and people flows all weigh on growth, according to a new ING Economics analysis.

The report dated August 16 said China experienced very weak growth in July as retail sales growth dropped to 8.5% last month after 12.1% growth in June, and industrial production grew only 6.4% year-on-year after growing 8.3% in June.

Retail sales in clothing and smartphones were badly hit. Clothing sales growth dropped to 7.5% year-on-year from 12.8% in June. Smartphone sales dropped to almost no growth at 0.1% year-on-year from 15.9% year-on-year. Dismal retail sales growth reflects softer consumer confidence, noted ING.

In industrial production automobile manufacturing contracted 8.5% year-on-year in July, which was due to the semiconductor chip shortage. Production for technology and computers continued to grow but at a slightly slower pace of 13.0% year-on-year in July from 13.4% in June. “We don’t believe this growth will be sustained in the coming months because the chip shortage is a global issue. China cannot escape from it,” said ING.

ING said August will be even slower for China as it sees an increase in risk factors, including more floods in China and the spread of the Delta Covid-19 variant in the Mainland.

Moreover, strict social distancing measures have affected the ports in Ningbo and Shanghai, which are close to each other. “This will negatively affect import and export activity around the area of Shanghai. We expect terminal congestion might take several months to clear.”

The chip shortage is likely to linger for at least two years, according to reports, which will gradually be reflected in slower production growth and related exports.

The report also believes that the China-US relationship is not going to improve anytime soon. “There are many disagreements between the two on international politics. Furthermore, there remains a technology war between the two countries.”

ING’s forecast for China gross domestic product or GDP is currently 4.5% year-on-year for the third quarter and 5.0% year-on-year for the fourth quarter of 2021.

Photo by Federico Burgalassi on Unsplash

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