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China’s July Industrial Output and Retail Sales Disappoint, Recovery Slows Down

China's factory output and retail sales grew at a slower pace in July, signaling that the economic recovery in the world's second-largest economy is losing momentum. Business operations were disrupted by the latest COVID-19 outbreak and adverse weather, which also contributed to the disappointing data.

National Bureau of Statistics (NBS) data released earlier in the day said industrial production rose 6.4% year-on-year in July, down from the 7.8% in forecasts prepared in and the 8.3% growth recorded in June. Retail sales grew 8.5% year-on-year in the same month, also down from the 11.5% growth in forecasts and June’s 12.1% growth.

Although China’s economy has recovered to pre-COVID-19 growth levels, businesses are facing higher costs and supply bottlenecks that are causing the growth to lose steam.

China's recovery also remains uneven due to sporadic COVID-19 outbreaks and natural disasters, NBS spokesperson Fu Linghui said at a briefing earlier in the day.

The country tightened restrictive measures in several cities thanks to its latest COVID-19 outbreak, hitting the services sector, particularly travel and hospitality, hard.

“July’s data suggest the economy is losing steam very fast... the resurgence of delta also adds extra risk to August’s activities,” Australia and New Zealand Banking Group chief economist for Greater China Raymond Yeung told Reuters.

Severe weather in some provinces, with July's record rainfall in Henan province causing floods that killed more than 300 people, added to the country’s woes.

All this could impact the government’s growth target, currently set at a modest above-6% for 2021. However, the data could prompt investors to lower their growth forecasts for 2021, which currently stand at a median of 8.5%, according to Bloomberg.

The People’s Bank of China on Monday rolled over only CNY600 billion ($92.62 billion) of the CNY700 billion in one-year loans that matured, in a step to reduce liquidity. However, the rate on the loans remained unchanged at 2.95%.