China flashed more warning signals yesterday as industrial output growth unexpectedly slowed to a 17-year low, underlining a need for more economic stimulus.
Stocks came under pressure after official data drew the world’s second largest economy sharply into focus, triggering a flight to safety that pushed gold prices to a 14-month high.
The latest industrial output figures from China fell short of expectations, with growth dropping to 5 per cent in the year to last month, down from 5.4 per cent in April. Analysts had forecast a modest recovery for May, with a growth estimate of about 5.5 per cent.
The data, the weakest factory output reading since early 2002, taken alongside receding levels of investments, reinforced apprehension about signs of weakening demand in China. The Chinese government, which is locked in an increasingly acrimonious trade war with the United States, has been taking steps to shore up its decelerating economy and is considering further measures.
“Any time you have weak economic news coming out of China, it highlights the fact that the trade tensions are having a negative impact on the global economy,” Robert Pavlik, of Slate Stone Wealth, an investment manager, said. “The dollar is strengthening. It’s seen as a safe haven. Treasury yields are moving lower. This is all indicative of concerns that the global economy is slowing.”
Wall Street indices were in the red yesterday, with the Dow Jones industrial average down by 0.1 per cent, the S&P 500 fell 0.2 per cent and the technology-focused Nasdaq was off 0.5 per cent at the close in New York.
In London, the FTSE 100 closed down 22.79 points, or 0.31 per cent, at 7,345.78.
Gold prices increased to a high of $1,358.04 per ounce for the first time since last April as investors sought assets that are deemed to be safe havens during times of uncertainty.
Chinese property sales, which last month suffered their biggest decline since October 2017, were among figures that have raised fears over the country’s economic performance. While fixed-asset investment stood at 6.1 per cent in China between January and April, its momentum also appeared to wane last month. Between January and May, it fell to 5.6 per cent.
About 60 per cent of China’s total investment is generated by private sector fixed-asset investment. While this grew by 5.5 per cent between January and April, it rose by 5.3 per cent between January and May.
Growth in property investment slowed from 11.9 per cent to 11.2 per cent over the same period. Infrastructure investment growth slipped from 4.4 per cent to 4 per cent.
The figures were published as China braces for an escalation in its economic dispute with President Trump, who has repeatedly threatened to impose additional tariffs on Chinese exports worth hundreds of billions of dollars. The two nations, which had spent much of this year negotiating a deal to resolve their dispute, are no longer engaged in formal discussions.
Mr Trump expressed optimism yesterday that talks would resume, but insisted that “it doesn’t matter” if President Xi steered clear of the G20 summit in Osaka, Japan, at the end of this month. “We’re going to see,” Mr Trump told Fox News. “Eventually they’re going to make a deal.”
Liu He, the Chinese vice-premier, raised expectations that the country would announce more measures to boost its economic growth by calling this week on its regulators to increase their support.
Yi Gang, governor of the People’s Bank of China, also has claimed that there is “tremendous” room for policy action if the dispute with Mr Trump intensifies.