China’s Recovery in Consumer Spending will Give Clues to Post Pandemic Economic Outlooks

Analysts are watching closes for signs of meaningful pick in China’s consumer spending after the country posted its record expansion in the first quarter of 2021.

The Wednesday data is expecting tosee a moderation in spending activities in May as the pandemic’s base effects started fading. According to Bloomberg Economists, retail sales slowed from 17.7% to 14% in April, while industrial output eased to 9.2%.

The strong recovery from the pandemic has been fuelled by the property, export boom, and heavy industry, with consumer spending remaining the weak link. Despite the continued pick up in May’s consumer spending as vaccine rollouts accelerated and employment improved, signs from the latest holiday spending data suggest reserved consumer spending. 

According to economists led by Yu Xiangrong at Citigroup Inc., the weakness in holiday spending forebode a bumpy road for consumption, particularly in consumer services. Despite the labor market condition has fully recovered to the pre-Covid-19 level, the factors weighing down on spending constitute the widening income inequality, rising debt burden, and permanent behavioral changes. 

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Economists expect unemployment in May to stay unchanged at 5.1%. China’s economy is expected to gradually moderate this year from 8% in Q2 to 6.2% in Q3, and 5% in Q4.  Growth is expected to hit 8.5% for the whole year, well above the government’s target of 6%. 

Key events this week (Economic Calendar):

  • FOMC rate decision (Wednesday)
  • Rate decision from Switzerland and Norway (Thursday)
  • Bank of Japan rate decision (Friday)

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