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Title: China unexpectedly cuts key rates as economic data disappoints

Aug 15, 2022 07:26AM ET

By: AnalysisWatch

China's central bank cut key lending rates on Monday to revive demand as data showed the economy unexpectedly slowed in July, with factory and retail activity curbed by Beijing's zero-COVID policy and a property crisis.

The dismal set of data indicates that the world's second-largest economy is struggling to shake off the June hit to growth resulting from strict COVID restrictions, prompting some economists to lower forecasts.

According to the National Bureau of Statistics (NBS), industrial production increased 3.8 percent year on year in July, falling short of the 3.9 percent increase in June and the 4.6 percent increase predicted by analysts in a Reuters poll.

Retail sales, which had only just returned to growth in June, rose 2.7% from a year earlier, compared to the 5.0% growth forecast and 3.1% growth in June.

The July data suggests that the post-closing recovery has lost steam, as the one-time boost from the reopening froze and mortgage boycotts caused a renewed deterioration in the real estate sector, said Julian Evans-Pritchard, senior China economist at Capital Economics.

"The People's Bank of China is already responding to these impediments by increasing support." But with credit growth proving less responsive to policy loosening than in the past, it is unlikely to be enough to prevent further economic weakness. "

Local stocks gave back earlier gains after the data, while the yuan weakened to a one-week low against the dollar and the Australian and New Zealand currencies retreated from recent two-month highs.

China's economy barely escaped a contraction in June, hurt by the closure of a Shanghai mall, a deepening slowdown in the real estate market and continued low consumer spending.

In July, many Chinese cities, including manufacturing centers and popular tourist destinations, imposed blockades after new outbreaks of the more infectious Omicron variant of the coronavirus were detected.

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