China’s central bank cut interest rates on Monday in a bid to boost the country’s faltering economic recovery as data on factory output and retail sales for July came in below analyst expectations.
The interest rate on one-year loans fell 10 points to 2.75%.
The world’s second-largest economy had a rebound in business activity thanks to the lifting of some health restrictions in June, but lost steam due to Beijing’s insistence on maintaining its zero covid policy, with confinements and extensive quarantines.
In July, Chinese industrial production rose 3.8% in one year, down from 3.9% in June, reported the National Statistics Office (ONE).
Meanwhile, retail trade grew 2.7% annually, down from 3.1% in June, while urban unemployment fell to 5.4%, indicated the ONE.
“The risk of stagflation in the world economy is growing and the basis for domestic economic recovery is not yet solid,” ONE warned in a statement.
Retail sales were possibly stagnant “due to some disruptions from the virus and the hit to consumer sentiment from the housing market woes,” Julian Evans-Pritchard, senior China economist at Capital Economics, said in a report.
“The economic data for July is very alarming,” Raymond Yeung, an economist at Australia & New Zealand Banking Group Ltd, told Bloomberg TV.
He added that “the zero covid policy continues to hit the service sector and affect household consumption.”
China’s real estate sector is reeling, with frustrated buyers in dozens of cities participating in mortgage boycotts, as cash-strapped developers struggle to complete their projects.
China’s economic growth was just 0.4% in the second quarter, the lowest since the start of the covid-19 pandemic.