Date: August 20, 2024
In July, export growth slowed compared to the previous month amid global manufacturing volatility and increasing international uncertainties. Local infrastructure development remained sluggish, and the real estate sector continued to struggle. Although consumer spending saw a modest increase, its sustainability remains uncertain. Industrial product prices continued to fall and consumer prices stayed low. These challenges were further underscored by negative growth in public budget revenue, lower monthly consumption in first-tier cities, and a decrease in M1 money supply, signaling a broader downturn in economic prosperity. In response, it is essential to address the systemic adverse effects of sustained low prices, closely monitor shifts in micro-incentives, and swiftly enhance primary entity incentives to stimulate sustained economic recovery.
The foundation for economic recovery requires further strengthening.
Over the same period, the manufacturing PMI dipped to 49.4%, signaling ongoing contraction, while the non-manufacturing activity and composite PMI output indexes slipped to 50.2%, reflecting growth deceleration. In the manufacturing sector, the production index fell to 50.1%. The service industry also saw a decline, with the business activity index falling to 50.0%. However, in sectors closely related to travel and consumption, such as railway and air transport, the business activity index remained robust, staying above 55.0%. In contrast, the construction industry's business activity index declined to 51.2%.
External demand turbulence slowed export growth.
Global manufacturing shifts and rising international uncertainties dampened export growth in July compared to the previous month. Regionally, while exports to Europe and the US increased, shipments to ASEAN, South Korea, Japan, and other Asian economies declined. By category, technology-intensive goods outperformed labor-intensive goods. On one hand, a resurgence in global demand for consumer electronics boosted exports along the computer and electronics supply chain. On the other hand, waning demand related to international events like the Paris Olympics reduced labor-intensive product exports.
Exports supported the overall stability of the industrial sector.
In July, the added value of the industrial enterprises above designated size eased by 0.1 percentage points to 5.9% compared to the previous month. Overall, exports remained the primary growth driver, with the cumulative growth rate of export delivery values for these enterprises increasing monthly since the beginning of the year. In July, export delivery values grew by 6.4% year-on-year, surpassing June’s growth rate. The electronics sector, a major export industry, experienced accelerated year-on-year growth in export delivery value, providing significant support. The automotive industry also maintained double-digit export delivery value growth for eight consecutive months. Additionally, the general and specialized equipment and chemical industries reported double-digit growth in export delivery values, possibly due to front-loading exports.
Multiple factors slowed investment growth.
From January to July, investment grew by 3.6%, a decrease of 0.3 percentage points compared to the first half of the year. A closer look at the sectors reveals that investment in manufacturing, infrastructure, and real estate slowed relative to the first half of the year. Infrastructure investment growth fell to 4.9% year-on-year due to the slow issuance of new special bonds and challenges in local government financing. Despite supportive policies, few cities experienced a market rebound, with housing prices remaining sluggish and homebuyers adopting a strong wait-and-see attitude.
A low base led to a rebound in consumer spending growth.
Retail sales growth rebounded due to a lower base compared to the same period last year, as well as a boost from summer travel and consumption-boosting policies. In July, the year-on-year increase rose by 0.7 percentage points to 2.7% compared to June. However, declines in overall income and wealth led to a heightened saving preference among residents, keeping consumer spending growth for enterprises above the designated size sluggish, with a growth rate of only -0.1%. Amid the summer travel season, the potential for service consumption continued to be unleashed. From January to July, service retail sales grew by 7.2% year-on-year, outpacing the growth of goods retail sales during the same period.
The persistent decline in prices needs to be reversed promptly.
From January to July, the year-on-year decline in the Producer Price Index (PPI) narrowed by 0.1 percentage points from the first half of the year, reaching -2.0%. Insufficient market demand and falling prices for some international bulk commodities contributed to a continued decline in the July PPI, with both month-on-month and year-on-year growth figures falling at the same rate as the previous month. The main drivers of the PPI drop were falling prices in the ferrous metals, non-metals, and equipment manufacturing industries. On the Consumer Price Index (CPI) front, high temperatures and rainfall drove up the prices of fresh vegetables and eggs, while strong summer travel demand increased the cost of flights and accommodation. As a result, the CPI increased by 0.5% year-on-year in July, with pork prices surging by 20.4%, significantly contributing to the rise.
