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Chinese Economy Stalls as Spending, Investment Drop to Covid-Era Levels

China’s consumer spending and retail sales have dropped for the first time since the pandemic, while government investment and infrastructure spending have weakened significantly. The slowdown in consumption—coupled with declining retail activity—is deepening economic imbalances despite strong export figures. Analysts warn the downturn risks prolonging the slump, with no clear near-term recovery drivers. Authorities are expected to respond with stimulus measures, including increased infrastructure investment.

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What changed

May data confirms the first contraction in retail sales and consumer spending since late 2022, marking a sharper downturn than April’s already weak figures.

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  1. China’s economy stalls as spending and investment fall to Covid-era lows

    China’s consumer spending and retail sales have dropped for the first time since the pandemic, while government investment and infrastructure spending have weakened significantly. The slowdown in consumption—coupled with declining retail activity—is deepening economic imbalances despite strong export figures. Analysts warn the downturn risks prolonging the slump, with no clear near-term recovery drivers. Authorities are expected to respond with stimulus measures, including increased infrastructure investment.

    What's confirmed:

    • China’s retail sales fell for the first time in over three years in May, marking the first decline since Covid lockdowns ended in late 2022.
    • Consumer spending dropped in May, with households tightening belts as discretionary spending weakened.
    • Government spending fell 7.3% in April, the steepest decline in six months, signaling a broader slowdown in economic activity.
    • Urban fixed-asset investment contracted more than expected in May, adding to signs of a deepening economic slump.
    • The decline in retail sales and spending comes despite a surge in exports, which have not been enough to offset domestic weakness.
    • Infrastructure investments are expected to rise as a policy response to stimulate growth amid the slowdown.

    Still unconfirmed:

    • AI-driven economic recovery is being widely anticipated but has not yet materialized as a tangible factor in current data.
    • Cross-border digital yuan payments may expand, but no direct link to immediate economic relief has been established.
    confidence 92%