Data released by the National Statistics Office on Monday in China, the world’s largest consumer of commodities, showed that the economy unexpectedly slowed down in July, with industrial production and retail sales well below expectations. Developments may result in China failing to meet its official growth target of 5.5 percent for 2022 for the first time since 2015. In addition, the slowdown in the recovery trend seen in May and June in July strengthens the concerns about how new epidemic waves that may emerge in the coming months may affect the economy. In China, the impact of the COVID-19 restrictions on the economy was clearly felt in the spring months, especially in Shanghai, the country’s largest city, in cities with a large population and hosting critical industries and business lines. Economic performance, measured at many sites, fell to its lowest levels since the first months of the COVID-19 outbreak, when the first cases were seen in Wuhan, China.
Industrial production increased by 3.9%, not 4.6%
According to the data of the National Bureau of Statistics (UIB), industrial production increased by 3.8 percent year-on-year in July, lagging behind the 3.9 percent increase in June. The expectation was an annual increase of 4.6 percent with the removal of some restrictions.
Retail sales increased 2.7%, not 5%
Retail sales, on the other hand, turned positive in June and rose 3.1 percent. Despite the expectation of a 5 percent increase in July, the increase in retail sales decreased to 2.7 percent.
China’s youth unemployment hits 20%
On the other hand, the unemployment rate in cities is still high. According to UİB data, the unemployment rate, which was 5.5 percent in June, became 5.4 percent in July. The unemployment rate in the 16-24 age group increased from 19.3 percent in June to 19.9 percent in July. China is implementing a “zero case” strategy against COVID-19, which aims to suppress cases where they arise and cut the chain of transmission. The strategy calls for strict and wide-ranging measures, such as quarantine, travel restrictions, mass testing, and restriction of activity by businesses in manufacturing, trade and services. Its measures cause controversy in terms of its economic cost as well as interfering with the ordinary flow of life.
Surprise interest rate cut after bad data from PBOC
The People’s Bank of China (PBOC) cut interest rates in order to provide approximately $60 billion of liquidity to the market, as July indicators point to a slowdown in the economic recovery. The bank unexpectedly cut interest rates for the first time since January. Contrary to market expectations, the PBOC cut the one-year Medium Term Loan Facility (MLF) interest rate by 10 basis points from 2.85 to 2.75 percent. It is aimed to transfer 400 billion yuan (approximately 59.34 billion dollars) to the market through the mechanism that allows banks to obtain medium-term loans from the Central Bank in return for their securities. The bank also cut the seven-day reverse repo rate by 10 basis points from 2.1 percent to 2 percent. From here, it is aimed to transfer 2 billion yuan (about 300 million dollars) hot money to the market.
28.9% decrease in new real estate sales
New quarantine measures in some manufacturing centers and tourist spots in July for the more contagious Omicron variants, and the housing sector worsened by the mortgage boycott overall, are the main reasons for the dragon’s slowdown. Real estate investment fell 12.3 percent in July – the fastest monthly decline this year. The decrease in new real estate sales is 28.9 percent. Real estate investments decreased by 6.4 percent in the first 7 months of the year compared to the previous year. Foreign direct investments to China did not increase as fast as expected. Foreign direct investments, which increased by 6.1 percent on an annual basis in June, were expected to increase by 6.2 percent in July, but the increase remained at 5.7 percent.
Oil drops 5% on China and Iran news
Global commodity markets were directly affected by China’s lower-than-expected July data, and the daily drop in oil prices exceeded 5 percent on the first trading day of the week. Iran’s statement that it wants to revive the nuclear talks ‘if the red lines are not exceeded’ further strengthened the Chinese-induced decline with the expectations that more supply will enter the market. While Brent’s barrel fell below $93 with a decrease of more than 5 percent during the day, the price of a barrel in WTI oil decreased to $ 86.82 as of 17:37 CEST. While the dollar index gained strength again and rose above 106 with the signals of slowdown from China, gold fell to the level of 1,772 dollars, below the level of 1,800 dollars / ounce, which began to be the psychological limit with both the strengthening of the dollar and the interest rate cut by China. Euro/dollar parity, on the other hand, returned below 1.02 due to the strengthening in the dollar and the ongoing natural gas bottleneck in Europe.