Central bank lowers interest rate
China’s economic figures are disappointing again
08/15/2023, 11:30 am
The Chinese economy continues to stutter. Young Chinese in particular are affected by high unemployment. The bad numbers are even surprising for the central bank in Beijing – the key interest rate is lowered again.
China’s economy remains weak: The country’s statistics agency released disappointing economic data again, this time for retail growth, which is important for growth, and industrial production. Retail sales grew 2.5 percent year-on-year, beating analysts’ expectations and also down from June’s 3.1 percent. This speaks for a currently unstable consumer confidence in the world’s second largest economy.
The country’s industrial production grew by 3.7 percent in July, up from 4.4 percent in June. The Chinese authorities also recently reported the lowest level of exports since 2020 for July. All these figures give reason to doubt that China will achieve its already low growth target of five percent for 2023.
Overall unemployment rose to 5.3 percent from 5.2 percent in June, the statistics agency said. The authority no longer published a separate figure for the recently high youth unemployment – this had reached a record value of over 21 percent in June. The statistical office stated that it wanted to “revise” its data.
Second rate cut since June
Last year, the strict measures to contain the corona pandemic severely slowed down the Chinese economy. Beijing lifted the restrictions in December, but the hoped-for recovery remained muted, which is also due to weak demand in Europe and the USA.
Against the background of the economic data, China’s central bank surprisingly tightened interest rates. As the central bank announced, the key interest rate for loans with a one-year term was reduced to 2.5 percent from the previous 2.65 percent. It is the second rate cut since June and the biggest rate hike since 2020.
In addition, the one-week reverse repo rate was reduced from 1.9 percent to 1.8 percent. The rate is relevant for short-term transactions with the financial institutions, but not as important as the main interest rate MLF. Analysts were surprised by the development.