China’s industrial output and retail sales grew more quickly than expected in October, despite fresh curbs to control Covid-19 outbreaks and supply shortages, but the slowing property sector weighed on the economic outlook.

Output grew 3.5 percent in October from the same period a year ago, official data showed on Monday, accelerating from a 3.1 percent increase in September. Retail sales growth also picked up.

The industrial output growth beat expectations of a 3 percent year-on-year increase in a Reuters poll of analysts, but remained the second lowest print this year.

The world’s second-largest economy had staged an impressive rebound from last year’s pandemic slump, but has since lost momentum as it grapples with a slowing manufacturing sector, debt problems in the property market and Covid-19 outbreaks.

“Economic momentum remained weak in October, with the real estate downturn weighing on industry,” said Louis Kuijs, head of Asia economics at Oxford Economics, in a note.

The National Bureau of Statistics (NBS) data also showed retail sales accelerated even as China imposed fresh restrictions to fight a new wave of Covid-19 cases in the north.

Retail sales rose 4.9 percent year-on-year in October, beating expectations for 3.5 percent growth and after a 4.4 percent increase in September.

“Growth will likely weaken in the rest of this year,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

“The Covid outbreak has forced more cities to tighten travel restrictions, which will likely affect the service sector adversely in November. The property sector slowdown is getting worse,” Zhang said, adding this was “the key risk for the macro outlook in the next few quarters.”

NBS data showed property investment and sales growth continued to slow over January-October compared with the first nine months, and new construction starts measured by floor area fell.

Sentiment in China’s property market has been shaken by a deepening debt crisis, with property giant China Evergrande and Kaisa Group grappling with looming defaults.

Policy Measures

China’s sprawling manufacturing sector has slowed this year after a blistering recovery from the Covid-19 slump, with electricity shortages and production cuts hampering production in recent months.

“We expect policymakers to take more easing measures to prevent growth from falling too much,” said Oxford’s Kuijs, adding that weaker demand is driving the broader industry slowdown rather than just supply constraints.

Easing measures should start to have an effect early next year, he said.

Policy sources and analysts have told Reuters that China’s central bank will likely move cautiously on loosening monetary policy to bolster the economy, as slowing economic growth and soaring factory inflation fuel concerns over stagflation.

Signs of stagflation are caused by short-term factors like high international commodity prices, said Fu Linghui, an NBS spokesman, at a briefing in Beijing on Monday.

Fixed asset investment continued to slow, the NBS data showed, rising 6.1 percent in the first 10 months from the same period a year earlier, compared with the 6.2 percent increase tipped by a Reuters poll and the 7.3 percent rise in January-September.

“We think macro policies are close to a turning point. We expect the government will boost fiscal spending around year end to stabilise the weakening trend in investment,” said Zhang.

The more upbeat output data stood in contrast to the country’s official manufacturing survey for October. China’s official purchasing managers’ index showed factory activity declined for a second straight month in October, hurt by persistently high raw material prices and softer domestic demand.

By Kevin Yao, Gabriel Crossley and Albee Zhang; Editing by Sam Holmes and Ana Nicolaci da Costa

Learn more:

China’s Energy Crisis Adds to Supply Chain Woes

Blackouts and power shortages at Chinese factories are adding to the supply chain challenges facing the global fashion industry.