May
Global Economy.- China’s post-Covid growth is losing momentum, with its youth unemployment rate reaching a record high. This development poses challenges for the global economy, which was relying on China’s recovery to drive growth.
Data released by China’s National Bureau of Statistics reveals that several key economic indicators for April, including retail sales, factory production, and fixed-asset investment, fell short of economists’ expectations. Additionally, investment in the country’s property sector declined during the first four months of the year.
Of particular concern is the rising unemployment rate among Chinese individuals aged 16 to 24, which reached a record 20.4% last month, up from 16.7% at the end of last year. These figures suggest that the world’s second-largest economy is losing its momentum, further contributing to the existing uncertainties faced by the global economy, including banking turmoil, inflationary pressures, and fallout from the Ukrainian conflict. This data reinforces the mounting evidence that China’s recovery will not have as strong an impact on global growth as it did in the past.
After lifting prolonged pandemic restrictions, pent-up demand for travel, dining, and other services has primarily driven China’s recovery.
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However, economists remain uncertain about the sustainability of this rebound. Factors such as high levels of debt, a distressed housing market, and uneven recovery patterns among different segments of the population are impeding growth.
The labor market is a significant concern for economists as it strongly influences consumer confidence. The persistently high levels of youth unemployment, with rates two to three times worse than the general population, have fueled fears of social instability domestically, particularly as tensions with Western nations escalate.
While some economists have raised China’s full-year growth forecasts to around 6%, surpassing Beijing’s target of approximately 5%, there is disagreement regarding whether interest rates will be cut in the near future.
Experts predict a potential downward spiral, characterized by reduced activity, increased unemployment, persistent disinflation, falling interest rates, and a weaker currency. Some anticipate that benchmark lending rates may be lowered in the second half of the year.
The weaker-than-expected economic data suggests the possibility of further policy easing to address labor market slack and rising deflationary risks. However, concerns about inflating asset bubbles might prevent the central bank from implementing immediate monetary policy measures. The recent economic report emphasizes the challenges of sustaining economic growth after restarting it.
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China’s recovery has been heavily reliant on spending on services, while spending on goods has lagged behind. This divergence persisted in April, with sales of appliances, furniture, and other goods remaining stagnant, while spending in restaurants continued to grow.
Factory activity also disappointed, declining by 0.5% in April compared to March, reflecting weakened export demand due to retailers in the West scaling back new orders amid elevated inflation.
Fixed-asset investment, encompassing manufacturing, property, and infrastructure, experienced an unexpected slowdown in April, with private firm investment growing by a mere 0.4% during the first four months of the year, further decreasing from last year’s weak rate of 0.9%.
The real estate sector continued to drag down the economy, with investment in China’s property market declining by 6.2% during the first four months of the year compared to the previous year.
Although China’s overall urban unemployment rate decreased to 5.2% in April, signaling some positive developments in the job market, youth unemployment rates continued to rise for the fourth consecutive month.
This is worrisome as young people comprised nearly 40% of employment in the service sector before the pandemic. The imbalance between job demand and availability, with factories struggling to find young workers and recent graduates avoiding blue-collar jobs, exacerbates the situation.
The statistics bureau acknowledges the need for more efforts to expand job opportunities for young workers, especially