Unemployment in China is easing overall, but a surge in youth unemployment to 20.8 per cent in May 2023 has tempered the recovery's sentiment. Slow income growth and wage cuts in some sectors have left consumer confidence recovery sluggish, according to S&P Global’s Economic Outlook Asia-Pacific Q3 2023 report.
Nevertheless, retail sales and discretionary spending have been expanding at a rate that surpasses what consumer confidence data suggests. The growth in real year-on-year (YoY) retail sales reached double digits in the second quarter, and discretionary spending in May was 21 per cent higher than in 2019 in nominal terms, compared with 17.3 per cent in April. This indicates that consumption is expected to continue to expand significantly into the second half of the year and into 2024.
However, weak exports and confidence continue to hinder private sector investment. A gradual improvement in profits is predicted to offer some support in the second half of the year, which will help broaden the recovery.
China's US-dollar imports were down YoY in May. However, in real terms, imports rose approximately 8 per cent YoY, signalling that China's recovery is beginning to impact international markets.
China's reopening hasn't resulted in a significant impact on domestic and global inflation due to the modest scale of the recovery and the fact that it's driven by the consumption sector. However, S&P Global expects domestic and international price pressures from China to increase as the recovery broadens and consolidates.
Despite these challenges, China's overall share in the global export market has remained relatively stable over the past three years. This demonstrates the enduring competitiveness of China's industrial sector amidst production shifts.
China's key downside risk is a possible slowdown due to weak consumer confidence. If a serious slowdown occurs, meaningful measures are expected to contain any downside. Conversely, strong growth could lead to macro policy becoming less accommodating, hence limiting the upside risk to growth. Long-term risks include an increase in geopolitical friction and its impact on China's economic and financial ties with developed countries. Domestically, skilful management of local government debt and financial reforms is required to balance growth and leverage, the report added.
Fibre2Fashion News Desk (DP)