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China’s Recovery Loses Steam, Signaling Trouble for Global Economy
- Country’s youth unemployment hits record high as new economic data falls short of expectations
HONG KONG—China’s post-Covid growth spurt is sputtering and its youth unemployment rate hit a record high, signaling trouble for a recovery that was expected to boost global growth.
A bundle of economic indicators for April, including retail sales, factory production and fixed-asset investment, fell short of economists’ expectations, according to data released Tuesday by China’s National Bureau of Statistics. Investment in the country’s property sector also dropped in the first four months of the year.
One of the most dramatic data points was the unemployment rate for Chinese aged from 16 to 24, which rose to a record of 20.4% last month. The rate has steadily increased from 16.7% at the end of last year.
Taken together, the data point to slowing momentum for the world’s second largest economy, adding to uncertainty for a global economy that is already facing headwinds from banking turmoil, sticky inflation and fallout from the war in Ukraine. The numbers add to mounting evidence that China’s recovery won’t drive global growth as strongly as it has in the past.
The recovery so far has been powered mainly by a burst of pent-up demand for travel, dining out and other services after nearly three years of strict pandemic restrictions that ended late last year. While it is still largely on track, economists say it is unclear how sustainable the rebound will be. Debt burdens and a distressed housing market are weighing on growth, and the recovery remains uneven, with pockets of the population left out.
Economists are particularly concerned about conditions in the labor market, a major determinant of consumer confidence after three years in which pandemic measures and travel restrictions took a toll on people’s willingness to go out and spend.
The persistently elevated levels of joblessness among the younger generation—the rate of youth unemployment has consistently been two or three times worse than the general population, and hasn’t fallen below 15% since the end of 2021—have also contributed to fears of domestic social instability at a time when tensions with the U.S.-led West have ramped up.
While many economists have recently raised China’s full-year growth forecasts closer to 6%, exceeding the roughly 5% target set by Beijing policy makers in March, they remain divided on whether Beijing will cut interest rates in the near term.
Ting Lu, chief China economist at Nomura, told clients in a note Tuesday that China faces “rising risks of a downward spiral” that can result in less activity, rising unemployment, persistent disinflation, falling interest rates and a weaker currency. He predicted that a cut to benchmark lending rates could arrive in the second half of year.
The weaker-than-expected economic report “opens the door for further policy easing” as the economy grapples with slack in the labor market and rising deflationary risks, said Tommy Wu, an economist at Commerzbank.
Bruce Pang, chief China economist at Jones Lang LaSalle, believes that while the economy could use some stimulus, China’s central bank will likely have to hold off on any plans to ease monetary policy, in part because of concerns about inflating asset bubbles. Tuesday’s release of weaker-than-expected data “shows how difficult it is to keep the growth engine running after restarting it,” Mr. Pang said.
On Monday, the People’s Bank of China kept key interest rates unchanged for a ninth consecutive month. At the same time, the central bank said the country wasn’t suffering from deflation, though it acknowledged that weak demand had kept inflation low.
“The ‘scarring effect’ of the pandemic has not yet faded, residents’ income expectations are still recovering, young people are under greater employment pressure, the sustainability of consumption recovery momentum is facing challenges,” the central bank said.
Exuberance from the sudden lifting of strict Covid regulations late last year uncorked a gusher of service spending. But that burst of activity already appeared to be losing steam in April.
While retail sales, a proxy for consumption, jumped 18.4% in April from a year earlier, the magnitude of the increase was mainly attributable to the comparison with the previous April, when a monthslong citywide lockdown in Shanghai snarled supply chains and hammered consumer confidence across the country.
The result also undershot expectations for a 20.5% increase among economists surveyed by The Wall Street Journal. When compared with March, consumer spending rose a mere 0.5% in April, according to the statistics bureau.
Spending on services has been the main driver of the recovery, while spending on goods is lagging. That divergence continued in April, with sales of home appliances, furniture and other goods remaining in the doldrums, even as spending in restaurants continued to gather momentum, Tuesday’s data showed.
Factory activity also disappointed, falling 0.5% last month compared with March, reflecting softening export demand as retailers in the West dial back on new orders amid elevated inflation.
Growth in fixed-asset investments, including those in manufacturing, property and infrastructure, slowed unexpectedly in April, with investment made by private firms growing just 0.4% during the first four months of the year, slowing further from last year’s already weak 0.9% rate.
Fixed-asset investment increased 4.7% from a year earlier in the January to April period, slowing from a 5.1% increase recorded in the first quarter, January to March, and lower than the 5.3% growth anticipated by economists polled by the Journal.
The drag from the real-estate sector, which suffered a sharp pullback through most of 2022, continued. Investment in China’s property market fell 6.2% in the first four months of the year compared with a year earlier, widening from a 5.8% decline in the first quarter.
In the labor market, China’s headline measure of joblessness, the surveyed urban unemployment rate, fell for a third straight month in April to 5.2%, the lowest level since late 2021. But that good news was overshadowed by a fourth straight month of rising joblessness among young people, who made up nearly 40% of service-sector employment before the pandemic, according to Louise Loo, China economist at Oxford Economics.
“To the extent that we think the recovery has been led by the services sector, the fact that one in five youth is out of job really indicates that the boost isn’t going to be a lasting one,” said Ms. Loo.
Fu Linghui, a spokesman at China’s statistics bureau, on Tuesday called for more efforts to help expand job opportunities for young workers, as the number of college graduates is expected to hit another fresh record this summer.
Part of the problem is a mismatch in the job market. Factories in China are struggling to find young workers, while many recent graduates are unwilling to take on blue-collar jobs.
In Beijing, Yao Jiaoqing said she quit her job as a coffee shop barista last month because she couldn’t endure the grind of the work while getting paid a monthly salary of less than 3,000 yuan, equivalent to around $431.
Ms. Yao has held different jobs in the telecom and online travel industries after graduating from college in 2018. The 27-year-old said she quit those jobs because she felt burned out working as a small cog in a large company. She was attracted to working in a coffee shop, where overtime wasn’t expected.
Ms. Yao said she estimates, based on her peers, that joblessness among her cohort may be even higher than the official data indicate.
“I look around at my friends of similar ages, about a third of them don’t have a job now,” she said. “I just want to lie flat,” she added, using a popular slang term akin to dropping out of the rat race.
—Grace Zhu and Xiao Xiao in Beijing contributed to this article.
Write to Stella Yifan Xie at stella.xie@wsj.com
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Business NewsSpecialsChina’s Recovery Loses Steam, Signaling Trouble for Global Economy
First Published:16 May 2023, 08:16 PM IST
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