China’s economy loses momentum in April as retail sales fall to 40-month low

China’s economy stumbled in April as the world’s second-largest economy weakened in the aftermath of the Iran war, with weaker-than-expected growth in consumption, industrial production and investment.

Data released by the Office for National Statistics on Monday showed retail sales rose 0.2% last month compared to the same month a year earlier, well below the 2% rise expected by economists and slowing from March’s 1.7% rise. This was the slowest growth since December 2022, as China began easing coronavirus measures, according to Wind data.

China’s industrial production rose 4.1% in April from a year earlier, slowing from the 5.7% increase in March and below the 5.9% growth expected in a Reuters poll.

Investment in urban fixed assets, including real estate and infrastructure, fell 1.6% year-on-year in the first four months of this year, compared with an expected 1.6% increase. Urban investment in the January-March period expanded by 1.7% compared to the same period last year.

The drop in investment was driven by the real estate sector, where flows this year fell by 13.7% as of April, further worsening from the 11.2% decline in the first three months. Investment in infrastructure and manufacturing increased by 4.3% and 1.2%, respectively, in the first four months.

Real estate investment in China has nearly halved since its peak in 2021. Lizzy Li, a fellow at the China Analysis Center, said further declines in house prices would hit household balance sheets even harder, noting that the real estate downturn has already caused significant job losses across the construction industry and related sectors.

Separate data released on Monday showed that China’s new home prices fell more sharply in April, albeit at a slower pace, as a multi-year real estate slump dragged on.

Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said strong exports helped ease the weakness in domestic demand, but it was not enough to completely offset it.

China’s exports picked up the pace in April as factories scrambled to meet surging overseas demand as foreign buyers stockpiled goods amid concerns that the Iran war would raise input costs. Exports increased by 14.1%, significantly exceeding the expected 7.9% increase.

The urban unemployment rate fell slightly to 5.2% from 5.4% in March, according to data released on Monday.

China’s exports to the United States have declined, but Washington announced Sunday that China has agreed to buy at least $17 billion of U.S. agricultural products in 2026 and the next two years. boeingThis follows last week’s high-profile meeting between US President Donald Trump and China’s Xi Jinping.

The two countries also agreed to establish a U.S.-China Trade Commission and an Investment Commission to address market access concerns and expand trade under a framework of tariff reductions.

Tommy Hsieh, head of Asia macro research at OCBC Bank, said the Trump administration appears to be backing away from its previous stance of “unequivocally calling for deep structural reform” of China’s economy, an effort to shift growth from exports to domestic consumption.

In a memo on Monday, Xie said both the United States and China are increasingly realizing that full-scale decoupling, or “uncontrollable conflict,” could impose significant costs on their economies.

Fu Linghui, spokesperson for the Chinese Bureau of Statistics, highlighted the country’s efforts related to the transition to renewable energy at a press conference on Monday, while warning that energy market instability and supply chain disruptions stemming from the Middle East conflict continue to cloud the global economic recovery.

The country’s crude oil refining volume fell for the second consecutive month in April, dropping 5.8% year-on-year, the sharpest decline since August 2024, while crude oil production increased by 1.2% year-on-year.

The soaring prices of primary products due to the war also pushed up producer and consumer prices in April, and factory shipment prices broke the deflationary trend of several years and hit the highest level in three years.

Producer price inflation in April exceeded consumer price inflation for the first time since July 2022, and OCBC’s Xie suggested that businesses will absorb most of the commodity shock rather than passing it on completely to consumers.

Fu also stressed that more efforts are needed to expand domestic demand and urged companies to improve their products to attract consumers. The Chinese government has made boosting domestic consumption a growth priority this year, but stimulus measures have so far had modest results.

Mr Hu said spending on culture, tourism, sports and entertainment activities emerged as a bright spot, with service retail sales increasing 5.6% in the first four months, outpacing the 1.9% growth in overall retail sales.

Analysts expect Chinese policymakers to maintain stimulus measures until there are further signs of economic deterioration.

Zhang said the Chinese government will continue to take a wait-and-see attitude and will likely reevaluate its policy stance in July after second-quarter GDP data. China’s economy appeared to be off to a strong start to the year, with GDP growth accelerating to 5% in the first quarter.