FX.co ★ China's economy limping amid low consumer confidence

China's economy has started its recovery from the coronavirus-driven economic consequences much earlier than other countries. Experts have been recording an increase in China's manufacturing PMI for the second month in a row.

Notably, the economy gained momentum in May while the pandemic eased and its negative impact began to wane. However, China's economic recovery was more fragile than expected. Analysts note that factories are back but consumers are not. The economy is unlikely to steam up as consumer demand remains sluggish. Chinese citizens are refraining from purchases and this trend is unlikely to change soon. Besides, empowering consumers is sure to be a tougher task.

According to the current data, retail sales and investment have been declining for a long period. Analysts point out that this negative trend reflects that many other sectors of China’s economy are also struggling to inch its way out of the coronavirus slump.

Nevertheless, by some measures, the economy is getting back on track despite the threat of a second wave of the coronavirus. In May, China’s Manufacturing PMI rose to 4.4%, its highest level since December 2020, data from the National Bureau of Statistics of China unveiled.

In the retail sector, the situation is gloomier. Retail sales have been declining for the fourth month in a row. In May, the figure dropped to 2.8% from 7.5% in April 2020. There are two main reasons for low consumer confidence: mass layoffs triggered by the coronavirus pandemic and concerns about the second wave of COVID-19.

From January to May, there was also a 6.3% decrease in fixed capital investment, while analysts had expected a 5.9% drop. Investments in fixed assets in the private sector, which account for about 60% of the total amount of funds, sank by 9.6% from January to May.