A sharp slowdown in Chinese spending growth and manufacturing added to the gathering gloom around the international economy on Friday, sending financial markets lower around the world at the prospect of global loss of momentum.
Retail sales grew at the slowest pace in 15 years in November in China, while factory output was the weakest in nearly three years, suggesting economic stimulus measures enacted by Beijing since the summer have failed to reverse flagging growth.
Wall Street responded badly to the news, with the S&P 500 closing 1.9 per cent lower on Friday, despite US President Donald Trump saying the “US is doing very well” in contrast to China.
Mr Trump, who has helped dampen market sentiment by launching a fierce trade war, appeared to revel in the Chinese economic downturn, writing on Twitter that it could force Beijing to the bargaining table.
“China just announced that their economy is growing much slower than anticipated because of our Trade War with them,” he wrote. “US is doing very well. China wants to make a big and very comprehensive deal. It could happen, and rather soon!”
Financial markets were far less optimistic, with an Asia-led global sell-off sending almost every major index lower. The CSI 300 index of mainland Chinese equities finished down 1.7 per cent while Hong Kong’s Hang Seng lost 1.6 per cent. The Europe-wide Stoxx 600 was down 0.6 per cent.
“The market is pricing in a significant deterioration in economic activity globally,” said Jeremy Zirin, head of Americas equities at UBS Global Wealth Management’s chief investment office.
The deceleration in China comes after a series of poor third-quarter growth reports in Europe and Asia — with Germany and Japan recording outright contractions. Mario Draghi, the European Central Bank president, on Thursday acknowledged that risks have been “moving to the downside” even as he reined in stimulus by halting new bond purchases.
The US has remained the bright spot with robust economic growth, but the Federal Reserve has sent signals it is rethinking its pace of rate increases as the faltering international economy weighs on US central bankers ahead of next week’s year-end meeting.
“Markets have been slow to recognise that we have seen the best of the global cycle,” said Megan Greene, global chief economist at Manulife Asset Management. “Earlier this year was probably as good as it gets globally, and it has been petering out since then.”
Chinese exports have remained resilient in the face of Mr Trump’s tariffs, but weak consumer spending and slowing investment in housing construction are dragging on the nation’s economy. Policymakers have injected cash into the banking system and fiscal authorities have pledged to increase infrastructure spending, but the latest data suggest further measures are likely.
At a meeting of the politburo on Thursday, the Communist party’s top policymaking body pledged to “maintain economic activity within a reasonable range” and “further stabilise” employment, investment and foreign trade.
Retail sales grew 8.1 per cent in November from a year earlier, the slowest pace since 2003, while industrial production rose 5.9 per cent, the weakest in 33 months, according to data released by China’s statistics bureau on Friday.
China’s auto market, the world’s largest, is on track for its first annual sales decline since the 1990s, while the China Association of Automobile Manufacturers forecast on Friday that sales would be flat in 2019.
“Consumers are worried that economic growth is slipping, they’re worried that their salaries aren’t increasing,” said Lin Longpeng, chief market analyst at Guotai Junan Securities in Shenzhen. “There may even be some corporate lay-offs. All this is causing a decline in consumer confidence.”
The Chinese growth data comes after figures released last month in Europe showed a similar slowdown. After a strong 2017, when the eurozone grew at its fastest rate since the financial crisis, growth fell to a four-year low of 0.2 per cent in the third quarter, with Germany weighing on the numbers. In Japan GDP fell at an annualised pace of 1.2 per cent in the same period.
The domestic US economy continued to show resilience. Official figures on Friday showed a core measure of US retail sales surged by the most in a year in November, as falling gasoline prices emboldened American consumers to spend freely elsewhere.
Those healthy rates of spending, alongside steady jobs growth, are likely to pave the way to a ninth quarter-point increase in short-term interest rates by the Fed on Wednesday. But discussion about more sluggish growth overseas and stormy financial markets permeated the central bank’s most recent policy meeting, and may well play a role in the Fed’s outlook next week.
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