Chinese factory output growth slowed down in May for a third consecutive month as likely COVID-19-led disruptions in the Asian country’s southern export powerhouse of Guangdong weighed down on the supply chains and overall exports.
Retail sales and investment growth also came in below market expectations, though analysts noted headline readings remain highly distorted by comparisons to the pandemic plunge early last year.
The Chinese economy has largely shaken off the gloom from the coronavirus-induced slump, but officials warn its recovery remains uneven amid challenges including rising raw material prices and global supply chain disruptions, especially a shortage of chips.
Industrial production grew 8.8% in May from a year ago, slower than the 9.8% uptick in April, National Bureau of Statistics data showed on Wednesday.
That missed a 9.0% on-year rise forecast by analysts from a Reuters poll.
"This is a normal cyclical slowdown after an economic recovery. In a nutshell, we can see the economic rebound is peaking," said Hao Zhou, senior EM economist Asia at Commerzbank.
"The extent of the slowdown in the second half is key. So far, it's still normal and there's still room for the fiscal policy to play a part later in the year."
Most analysts had expected some moderation in May output due to softer export orders, higher cost pressures for factories, production bottlenecks and tighter environmental restrictions on heavy industry. But they said China's underlying economic activity still appears quite solid, if somewhat uneven.
Outbreaks of COVID-19 in the Pearl River Delta since late May have brought some key ports to a standstill, economists at Nomura said in a note to clients, though it believes the current spate of infections can be contained and backlogs cleared in a relatively short period of time.
Fu Linghui, an NBS official, said external risks also remain, such as still rising global COVID-19 infections, an uneven recovery in the world economy and spill-over effects from large stimulus programs from some countries.
Retail sales rose 12.4% year-on-year in May, weaker than 13.6% growth expected by analysts and down from the 17.7% jump seen in April. Chinese consumer and business confidence has been picking up thanks to pent-up demand and quickening vaccine rollouts, which are also reviving domestic tourism.
Fixed asset investment increased 15.4% in the first five months from the same period a year earlier, versus a forecast 16.9% rise, slowing from January-April's 19.9% increase.
"Economic data in May paint a similar picture as in April – still an unbalanced recovery," said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
"The good news is that the labor market remains tight. We think there is no urgency for the government to switch its policy stance at this stage."
The nationwide urban unemployment rate fell to 5.0% in May, the lowest since May 2019, from 5.1% in April.
Real estate investment in China also rose at a slower pace in May, as more smaller towns joined bigger cities in trying to curb red-hot housing prices.
On a month-on-month basis, Capital Economics estimated industrial output growth was unchanged at 0.5%, the pace of investment spending eased slightly and retail sales picked up.
Notably, the two-year average growth in manufacturing investment turned positive in May.
Earlier data for May painted a somewhat mixed picture, with export growth easing but imports picking up, fueled by surging demand and prices for raw materials.
Surging commodities prices pushed China's producer inflation to its highest level in over 12 years, squeezing profit margins for mid- and downstream firms.
Bank lending unexpectedly rose in May but broader credit growth continued to slow, a trend analysts said could start to weigh on activity in the second half of the year.