The latest soft industrial data out of China have fuelled speculation of fresh stimulus as the economy faces headwinds from the US trade war (STR)

Beijing (AFP) – China’s economy showed further signs of weakness last month, with industrial output posting its slowest growth in 17 years, placing further pressure on the government as it tries to steady the ship while battling a trade war with the US.

Authorities have for years been attempting to transition the world’s number two economy from a reliance on state investment and exports to a more stable model driven by consumption, with the tariffs stand-off complicating that mission of late.

Retail sales actually beat expectations, rising 8.6 percent year-on-year in May, the National Bureau of Statistics (NBS) said on Friday.

That compares to an 8.1 percent increase forecast in a Bloomberg poll of analysts.

But the NBS also said industrial output rose just 5.0 percent, the slowest increase since 2002, and missing a 5.4 percent analyst forecast.

Fixed-asset investment growth also underwhelmed with 5.6 percent growth.

The readings are likely to fan speculation that authorities may launch another round of stimulus.

Beijing has rolled out huge tax cuts and other measures this year to try to blunt the impact of a trade war, which has seen the US impose tariffs on hundreds of billions of dollars worth of Chinese goods, causing worries for exporters.

China’s exports beat gloomy forecasts to rebound somewhat in May, though imports sank more than expected, according to official data released earlier in the week.

But the overall downward trend gives Xi little room to fight back forcefully against the US, which is using tariffs as leverage to try to force China into opening up its economy.

ANZ Research said it expected further gloom ahead and revised down its 2019 estimate for Chinese economic growth.

“The economic data coming out of China over the past two months have not lived up to our expectations,” it said in a commentary on Friday.

It had adjusted its gross domestic product growth forecast to 6.2 percent for 2019, from a previous estimate of 6.4 percent.

“The industrial outlook will remain gloomy over the next few months in our view. Consequently, China’s headline Q2 GDP figure will likely slow to 6.2 percent,” ANZ Research said.

China’s economy grew 6.4 percent in the first quarter of 2019, according to official data.

The International Monetary Fund on Wednesday also said it was lowering its China economic growth forecasts for 2019 and 2020, citing “uncertainty” over the trade war.

It now expects 6.2 percent growth this year and 6.0 percent in the next, down from previous forecasts of 6.3 percent and 6.1 percent, respectively.

ANZ said expectations of a US Fed rate cut would give Chinese policymakers room to adjust reserve requirement ratios and money market rates, adding that it expected Beijing to do so.

Disclaimer: Validity of the above story is for 7 Days from original date of publishing. Source: AFP.