China’s economy slowed across the board in July as retail sales barely increased

China’s economy lost momentum across the board in July as consumer spending stalled and urban investment contracted at a faster pace while unemployment rose, increasing pressure on China to provide more aid in the second half of the year.

Retail sales rose 0.6% year-on-year, the Office for National Statistics said on Monday, missing the 1.5% rise expected in a Reuters poll and slowing from June’s 1% rise.

China’s urban fixed asset investment, which includes real estate and infrastructure, fell 6.7% year-on-year at the end of July this year, worse than the survey’s estimated 6% decline. The decline further accelerated from the 5.7% decline in the first half of this year.

Industrial production rose 4.5% in July, below the expected 4.8% increase and slowing from June’s 5.3% increase.

The urban unemployment rate was 5.2% in July, up from 5% in June.

The statistics, released at 3pm instead of the usual 10am, heightened concerns about the health of the world’s second-largest economy, which faces a deepening supply-demand imbalance.

Industrial production and exports linked to the global AI investment boom are helping to cushion the slump in consumption and private investment, but July figures suggest support may be waning.

The statistics bureau said in an English statement that China needs to “accelerate the transition to new growth engines” and calls for greater reforms and further opening up.

Statistics Bureau spokesperson Fu Linghui said in a press conference on Monday that geopolitical pressures abroad and high temperatures at home affected China’s economy last month. While acknowledging that key economic indicators had slowed last month, Fu noted that service retail sales grew by 5% in the first seven months of this year, while goods retail sales grew by 1.1%.

Hu added that despite the “shock” caused by July’s extreme weather, exports, new growth drivers and macro policies will help the Chinese economy achieve its full-year growth target.

China’s retail sales growth has slowed sharply over the past year, with nominal growth slowing to just 1.3% in the first half of this year from 5% in the same period a year earlier, as a government trade-in subsidy scheme that pushed purchases forward subsequently weighed on it, according to Goldman Sachs.

China’s consumer inflation slowed to a six-month low of 0.5% in July, while core CPI, which excludes volatile food and energy prices, rose 0.9%.

Another statistics bureau spokesperson, Wang Guanhua, said on Monday that the slowdown in consumer inflation in July was due in part to the drop in global oil prices, pointing to plans for additional fiscal support at the latest Politburo meeting.

In another sign of continued weakness in spending, new bank loans issued in July, when lending is typically weak, suffered the biggest monthly decline on record, Barclays said. Household lending, including mortgages, contracted in July after briefly recovering in June due to weak housing activity and a weak labor market, according to official CNBC figures.

A multi-year real estate recession has weakened demand for mortgages, while banks, wary of borrowers’ ability to repay, have become reluctant to lend.

The employment situation may be worse than official statistics suggest. As of July, China’s broad-based unemployment rate was 10.2%, significantly higher than the official figure of about 5%, according to a private survey conducted by Li Daowei, an economics professor at Tsinghua University, and his team.

The survey also counted people who have been unemployed in the past two years and are no longer included in the official labor force survey, and found that more than half of the roughly 24 million long-term unemployed are between 16 and 24 years old.

The official youth unemployment rate in June was 14.9%, the highest unemployment rate for the month since the government excluded university students from the sample more than two years ago.

Behind the slump in employment is a slump in investment. Urban investment fell last year for the first time in decades, down 3.8% year-on-year, and worsened this year as a slump in real estate and tighter local government borrowing restrictions hampered one of China’s traditional growth engines.

Investment in real estate fell by 19.2% in the first seven months of this year, while infrastructure investment and manufacturing investment fell by 3.6% and 1.7%, respectively.

High-tech investment, which represents a state priority, rose 5% year over year in the first seven months of this year. This category includes information services, aerospace, and equipment manufacturing.

The severity of the decline in overall investment is “unprecedented”, Li said, adding that reduced investment and high youth unemployment are the biggest obstacles to achieving China’s growth goals.

Factory and construction activity also lost momentum in July, with the official manufacturing PMI unexpectedly contracting for the first time since February.

Amid energy turmoil in the Middle East, China’s crude oil production in July increased by 0.8% year-on-year, hitting a record high, Fu said. He added that natural gas and electricity production remained high in July, ensuring sufficient daily supply.

Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said the latest data points to “further downside risks” that require more effective policy responses, raising expectations for interest rate cuts by the People’s Bank of China.

China’s top leadership last month promised increased fiscal spending, but implementation and communication will take time, Zhang said.

“The acceleration in fiscal enforcement after the July Politburo meeting will likely support activity,” said Sheena Yue, senior economist at Oxford Economics. He kept his growth forecast unchanged at 4.8%, expecting only a gradual recovery in the second half of the year, citing a weak start in July.