Retail sales struggled in August, increasing just 2.5% compared to a year earlier, according to government statistics released Wednesday. That was much weaker than expected and a dramatic slowdown from the 8.5% uptick recorded in July.
Chinese authorities attributed the slower growth to Covid-19 outbreaks and flooding, which stopped people from traveling and caused them to hold off on “summer holiday spending,” according to Fu Linghui, a spokesman for the National Bureau of Statistics, who spoke Wednesday at a press conference in Beijing.
Industrial production rose 5.3% in August from a year earlier, also slower than July and the weakest growth generated by China’s factories in a year.
Investment in urban areas, meanwhile, increased 8.9% for the January-to-August period, down from 10.3% through the first seven months of the year.
The data released Wednesday is the most stark showing yet of how much the actions that the government took to slow an outbreak of the Delta variant this summer have hit the economy. To stop new infections China has pursued an aggressive zero-Covid strategy, locking down cities, canceling flights and suspending some port operations.
The approach worked to bring the virus back under control, albeit at the expense of economic activity.
But the Chinese economy has other concerns to contend with, too, including a crunch facing the property sector.
New housing projects, as measured by floor space, fell 3.2% during the first eight months of the year.
“The headwinds facing the property sector appear to be intensifying,” wrote Julian Evans-Pritchard, senior China economist for Capital Economics, in a research report on Wednesday. He added that the government’s restrictions on borrowing among property developers are putting strain on the sector.
The coronavirus, meanwhile, may continue to vex the economy. A new outbreak in southeastern Fujian province “is posing a downside risk to our forecast of a pickup in growth” in the fourth quarter, after a weak third quarter, wrote Louis Kuijs, head of Asia economics for Oxford Economics, in a Wednesday research report.
But Kuijs added that the Chinese government will likely be keen to avoid a sharp slowdown. He expected authorities to support growth in the coming months by cutting interest rates and allowing local governments to issue more bonds to fund infrastructure projects.