China unexpectedly cuts key lending rates

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BEIJING- China’s economy unexpectedly slowed in July, data showed on Monday, with factory and retail activity squeezed by Beijing’s zero-COVID policy and a property crisis, while the central bank surprised markets with key lending rates cuts to revive demand.

Industrial output grew 3.8 percent in July from a year earlier, after expanding 3.9 percent in June, data from the National Bureau of Statistics (NBS) showed. That compared with a 4.6 percent increase expected by analysts in a Reuters poll.

Retail sales, which only turned positive in June, rose 2.7 percent from a year ago, greatly missing analysts’ forecast for 5.0 percent growth and below the 3.1 percent growth seen in June.

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The world’s second-biggest economy narrowly escaped a contraction in the June quarter, hobbled by the lockdown of the commercial hub of Shanghai, a deepening downturn in the property market and persistently soft consumer spending.

However, risks to growth abound as many Chinese cities, including manufacturing hubs and popular tourist spots, imposed lockdown measures in July after fresh outbreaks of the more transmissible Omicron variant were found.

The property sector, which has been further rocked by a mortgage boycott that weighed on buyers’ sentiment, deteriorated in July. Property investment tumbled 12.3 percent in July, the fastest rate this year, while the drop in new sales deepened to 28.9 percent.

“All economic data disappointed in July, with the exception being exports. Loan demand from the real economy remained weak, suggesting cautious outlook for the months ahead,” said Nie Wen, Shanghai-based economist at Hwabao Trust, adding that COVID outbreaks and the heatwaves in July weighed on activity.

Nie lowered his forecast for three-quarter gross domestic product growth by 1 percentage point after the data release to 4-4.5 percent.

“Now it is looking increasingly challenging to even achieve the 5-5.5 percent growth in the second half.”

Chinese policymakers are trying balance shoring up a fragile recovery and eradicating emerging COVID clusters with the economy expected to miss its official growth target this year – set at around 5.5 percent – for the first time since 2015. — Reuters

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