What The Gel?

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What's going on?

Data out on Wednesday showed Chinese retail sales rose at their slowest pace in a year in August, as the country’s efforts to kill off Covid leave behind a sticky situation.

What does this mean?

China’s done a pretty solid job of keeping the pandemic in check, with the country quick to clamp down on any outbreaks as and when they spring up. But that efficiency’s come at a price: retail sales rose just 2.5% last month compared to the year before – well below the expected 7%. That’s got analysts worried that the country’s overall economic recovery is at risk, especially since any more outbreaks are bound to interrupt consumer spending and supply chains all over again. Investment bank Goldman Sachs is so worried, in fact, that it’s lowered its forecasts for the country’s economic growth from 5.8% to 2.3% this quarter.

Why should I care?

For markets: A change of tactics might be in order.
China’s resisted relying on broad-brush support packages like other developed economies, instead choosing to focus on targeted programs for small businesses. But economists think this recent data might encourage its government to try a different approach: cutting the amount of cash banks are required to hold in reserve in an effort to boost lending and, in turn, spending. It might help increase investment in Chinese stocks too, which would be good news for the country’s ailing stock market: it’s fallen 8% this year.

The bigger picture: So much for “safe as houses”.
China’s property market has been having a tough time of it too: the government’s been rolling out restrictions across the sector, making it a lot harder for developers and homebuyers to take out loans. That might be why home sales fell 20% in August compared to the year before – the biggest drop since the pandemic hit last year.

Originally posted as part of the Finimize daily email.

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