China's factory output disappoints, dashing hopes for speedy recovery

China's industrial output growth slows, retail sales rise, but analysts warn of challenging outlook and need for more stimulus.

China's factory output growth slowed and missed expectations in July, adding to a series of indicators that show the world's second-largest economy is struggling to kick into a higher gear, even with recent government support.

Industrial output grew 5.1% from a year earlier, National Bureau of Statistics (NBS) data showed, slowing from the 5.3% pace in June and below expectations for a 5.2% increase in a Reuters poll of analysts.

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In an upbeat contrast, the NBS' monthly activity indicators showed retail sales, a gauge of consumption, rose 2.7% in July, quickening from a 2.0% increase in June and beating expectations for growth of 2.6%, a sign efforts to boost household spending were getting some traction.

However, analysts warn the broader outlook is still highly challenging for policymakers, suggesting more stimulus measures will be needed.

"The data shows that the economy has gotten off to a weak start in the second half of the year, and it is expected that the probability of replacing MLF with a RRR cut will increase, but key to maintaining 5% economic growth remains the arrival of fiscal spending," said ANZ China market economist Xing Zhaopeng. He was referring to the People's Bank of China's medium-term lending facility and reserve requirement ratio.

On Thursday (August 15, 2024), the central bank injected cash through a short-term bond instrument and said it would conduct an MLF rollover later this month as it extends liquidity support to the financial system.