China’s May industrial output growth cools to 17-yr low as trade war escalates

BEIJING: China’s economy flashed more warning signs in May as the United States ramped up trade pressure, with industrial output growth unexpectedly slowing to a more than 17-year low and investment cooling, underlining a need for more stimulus.
Hours after the surprisingly weak data, China’s central bank announced 300 billion yuan ($43 bn) in fresh support for smaller banks, though analysts expect more sweeping measures in coming months if the US-Sino trade dispute intensifies.
Despite a slew of support steps since last year, China’s economy is still struggling to get back on firmer footing, and investors fear a longer and costlier trade war between the world’s two largest economies could trigger a global recession.
Industrial output grew 5.0 per cent in May from a year earlier, data from the National Bureau of Statistics showed on Friday, missing analysts’ expectations of 5.5 per cent and well below April’s 5.4 per cent.
The reading was the weakest since early 2002, and exports were a major drag, showing only marginal growth.
Fixed-asset investment also grew less than expected, reinforcing expectations that Beijing needs to roll out more growth measures soon.
“The weakness in May’s and April’s activity data suggests that economic growth is likely to slow this quarter and increases the likelihood of additional monetary easing in the coming months,” Capital Economics said in a note.
Vice Premier Liu He stoked expectations of more action on Thursday, urging regulators to do more to boost the economy and saying Beijing has plenty of tools it can use.
Analysts at Goldman Sachs said in a note they expect authorities to further cut banks’ reserve requirement ratios (RRRs) to free up more funds to lend and lower interbank interest rates. But they do not expect China to actively use currency depreciation to support the economy.
Real estate investment, a key economic driver, also showed signs of fatigue, with construction starts slowing markedly and property sales falling the most since October 2017.
“The slowdown in the real estate sector is concerning. We really need to keep an eye on its negative impact on growth,” economists at ANZ said in a note to clients, trimming its 2019 growth forecast for China to 6.2 per cent and 6 per cent for 2020. — Reuters