Delta variant interrupts economic performance

CHINA - Report 24 Aug 2021 by FAN Gang and Chunyang Wang

COVID’s Delta variant and extreme weather have been hitting the economy for the past month, but their effects will be temporary. Industrial output was up 6.4% y/y in July, and up 11.5% from July 2019, with an annualized growth rate of 5.6% y/y, down 1 ppts from Q2 2021. Investment was up 10.3% y/y, and up 8.5% from July 2019, with annualized growth of 4.2%, down 0.3 ppts from H1 2021, hitting its lowest growth rate since 1990.

Consumption and trade have both slowed too. Retail sales of social consumption goods were up 8.5% y/y in July, and up 7.2% from July 2019, with an annualized growth rate of 3.6% y/y, down 1 ppts from Q2 2021. Exports rose 8.1% y/y, down 12 ppts from Q2, while imports rose 16.1% y/y, down 14.5 ppts.

Producer prices have continued their rapid growth. In particular, the ex-factory price index of industrial goods and PPI rose 0.5% and 0.9% m/m respectively, and rose 9% and 13.1% y/y, comparable to June. CPI rose mildly, and increased 1% y/y in July, slightly less than in May and June. We expect CPI to rise to around 2% by yearend.

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