China’s key economic data to be released Monday will be closely analyzed for signs that the downturn is severe enough to urge financial support from authorities, according to a recent report by Bloomberg.

There is a likelihood of China’s economy continuing to slow down across the board in October with little sign of bottoming out. The weakness in the economy is attributed to both the supply and demand sides, similar to when the economy was initially hit by the COVID-19 epidemic in early 2020, Bloomberg explained. 

However, this time, supply shocks are caused by electricity shortages, Beijing’s environmental curbs, and a crackdown on financial risk, which has damaged the property market. Meanwhile, the COVID-zero strategy continues to hit domestic demand.

The energy rationing that started in September extended to October, while corporate profits remained restrained by elevated cost pressures, with both limiting factory output. As a result, a higher base for comparison last year might also drive the reading lower. 

This week, China’s largest grid operator said that supply and demand have returned to balance in around 88% of the country, and the power crisis is calming for now. Still, there remain limits on some high-consuming, heavy-polluting industries in selected provinces. And with a cold winter predicted and additional supplies of coal limited, there could be further shortages.

Economists expect industrial production to have grown by 3% from a year ago, the slowest pace since it shrank in early 2020, according to the median estimates in a Bloomberg survey.

A leading subindex in China’s purchasing managers’ index data that measures output indicated further softness, sinking deeper into the contraction area in October.

According to the survey, fixed-asset investment in the first 10 months of the year is estimated to have decelerated to 6.2% from 7.3% in September, mainly due to tightened financing for developers amid the real-estate market turmoil that started with China Evergrande Group.

As real-estate and related industries represented up to 25% of China’s gross domestic product, economists expected the downturn in the sector could become the biggest drag on growth, despite policymakers’ fine-tuning of some property policies and state media’s fanning speculation of an easing in curbs. 

New COVID-19 outbreaks and China’s zero-tolerance approach tend to deal another blow to consumption, with restaurants or catering and retail sales in physical stores especially feeling the pain, Bloomberg added. In addition, soft national holiday spending data showed that consumer confidence has not picked up to levels seen before the pandemic. 

People may have delayed purchases from October to take advantage of the Singles’ Day online shopping festival in November, which could weaken the reading last month. As a result, economists expect retail sales growth to slow to 3.8% in the month. 

Screenshot of Bloomberg/via TheBL.

Considering the increasing downward pressures, several economists have lowered their growth forecasts for the coming quarters, including Nomura’s Lu Ting.

“The worst is yet to come,” Lu said. “Despite an alleviated energy shortage and fine-tuning of property curbs, we believe economic conditions are likely to further deteriorate as the pain threshold seems yet to be reached for Beijing to take real actions.”

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