China retail sales fall fuels concern for global recovery from Covid-19

Richard Partington
·2-min read
<span>Photograph: Xinhua/Rex/Shutterstock</span>
Photograph: Xinhua/Rex/Shutterstock

Fears over the strength of China’s economic recovery from the coronavirus pandemic have been raised after retail sales slumped in July and industrial production remained subdued.

Fuelling concerns for the world economy, retail sales in China dropped in July by 1.1% compared with the same month a year ago, missing predictions for a small increase in consumer spending.

Related: Markets hit by UK quarantine move and China retail sales fall - business live

As the first country to be hit by the Covid-19 pandemic, and the first to ease lockdown rules, the world’s second-largest economy is seen as a bellwether for other nations battling to save jobs and reboot growth.

Separate figures showed industrial output grew 4.8% in July from a year earlier, the same level as recorded in June but less than the 5.1% increase estimated by City economists.

China became one of the only major global economies to avoid recession this summer after returning to growth in the three months to June. Following its first-ever quarterly decline in gross domestic product (GDP) in the three months to March, the economy recovered by 3.2% in the second quarter as Covid-19 restrictions were relaxed.

Economists have warned, however, that the official figures are likely to have overestimated the strength of the recovery and said that a slowdown was inevitable after the initial boost from reopening faded.

The decline in retail sales was broad based, with clothing, cosmetics, home appliances and furniture all worsening from June. Spending on catering fell by 11% from a year ago, reflecting the impact of physical-distancing measures.

Analysts said heavy rain and flooding in parts of China probably contributed to the decline in consumer spending, indicating that the underlying strength of the economic recovery could still be intact.

Spending increased on cars and mobile phones. Sales of high-end products such as cosmetics and jewellery also increased, boosted by Chinese tourists spending their summer holidays at home as other nations put travel restrictions in place.

However, the broader weakness in retail sales and for industrial output led stock markets across Asia to decline on Friday, amid growing concerns over the global economic recovery from the pandemic.

Russ Mould, the investment director at the stockbroker AJ Bell, said: “China was first into the coronavirus crisis and arguably one of the first to come out of its first phase, so the fragile nature of its recovery offers an uncomfortable view of the future for other countries.”