China heads for longest slowdown in consumption growth since post-covid

China is heading for its longest slowdown in consumption growth since its post-Covid rebound lost steam more than four years ago, underscoring how the government’s rhetoric about supporting domestic demand has struggled to match reality.

 

Government data due on Friday will likely show retail sales rose 2.8 per cent last month from a year before, the median forecast of economists in a Bloomberg survey shows. That would mark the fifth straight month of deceleration — the longest such streak since 2021, and the weakest gain in more than a year.

 

Top government and Communist Party officials regularly state that they’re committed to lifting domestic spending — something the US and other major trading partners have also long demanded. Just last month, the party pledged to “significantly” raise the share of consumer spending in the economy over the coming five years.

 

To be sure, some of the anticipated October weakness has a technical nature: sales a year ago offer a high base of comparison, and last month had one fewer working day than in 2024.

 

Nevertheless, the soft retail number is projected for release alongside other gauges that may similarly stoke concern about slowing economic growth. Industrial production is forecast at a 5.5 per cent gain, versus 6.5 per cent the previous month. The contraction in fixed-asset investment may have deepened to 0.8 per cent for the first 10 months of the year from 0.5 per cent in January-September, with property investment entrenched in double-digit contraction. 

 

“Economic indicators seem set to slow down in October due to a higher base and the calendar effect as well as weaker momentum,” Citigroup Inc. economists including Yu Xiangrong wrote in a note last week.

 

October figures for trade published last week showed exports fell for the first time in eight months.

 

Still, top authorities may not be convinced further action is needed, given that their full-year growth target of around 5 per cent remains in sight for 2025. The current consensus forecast among economists is for a 4.9 per cent gross domestic product gain for the year.

 

Signs of a moderation in consumption already emerged when lukewarm travel and spending data were reported for the weeklong National Day holiday at the start of the month. 

 

The cooling underscores the limits of Beijing’s approach to spurring household consumption through limited subsidies for specific goods, rather than adopting a broader set of reforms to boost household purchasing power.

 

Other areas of the economy offer a mixed picture. Capital spending in high-technology sectors has been a big focus of policymakers. But more traditional infrastructure investment — the main tool the government uses to shore up the economy during down-cycles — has lost traction as Beijing tightens controls on local authorities in order to contain debt risks. And the years-long property slump is also getting worse, not better. 

 

The government has since the end of September added a combined 1 trillion yuan ($141 billion) in stimulus to bolster investment and beef up local finances. But it may take some time for that funding to trickle through the economy.

 

As for monetary stimulus, that may not be immediately forthcoming. Some economists have pushed back their forecasts for another cut in the benchmark interest rate after the People’s Bank of China on Tuesday hinted at a less dovish stance by downplaying concerns over slowing loan growth.

 

On the plus side, a truce to the trade war with the US and a global investment binge in artificial intelligence are mitigating concerns over China’s export outlook.

 

“External demand could exceed expectation again on accelerating global growth and China’s manufacturing competitiveness,” Macquarie Group economists including Larry Hu wrote in a report Tuesday. The team called exports “the biggest surprise” this year, and noted the consensus projection for that growth next year is 1 per cent. 

 

If that pans out, China’s bifurcated economic pattern may continue next year, “as robust external demand reduces the urgency of boosting domestic demand,” they said.