After rattling investors’ nerves worldwide over recent months, it appears that the Chinese themselves are now nervous about recent developments in their economy.
The latest Westpac-MNI Chinese consumer sentiment index for February fell by 3.1% to 111.3, taking sentiment levels back to lows last seen in October 2015.
The decline was broad based with four of the survey’s five subsectors falling during the month.
Worryingly, the steepest falls came from sentiment towards household finances and consumption, the great hope which many of China’s optimists, along with the government, hung their hats on when it came to powering economic growth moving forward.
Sentiment towards current personal finances fell by 1.3% to 100.7, taking it back to levels last seen in May 2015. Expectations for finances in the future fared even worse, slipping 3.7% to 114.0.
The survey’s durable buying conditions measure, an indicator on consumption, plummeted by 4.7% to 99.8, the lowest level in the nine-year history of the survey.
Westpac notes that the spending measure has a high correlation with official data on retail sales.
Combined, the deterioration in these measures provides a disturbing picture for the near-term prospects for the Chinese economy, particularly when the nation is in the midst of a tricky economic transition reliant upon consumption to help offset weakening activity across its construction and industrial sectors.
Outside of personal finances and consumption, the survey’s other two components — related to business conditions came in mixed.
Sentiment towards the business outlook in the year ahead rose by 1.6%, although the improvement was overshadowed by a 6.7% plunge in expectations looking five years ahead.
The table below, supplied by Westpac, reveals the internal movements of the survey’s components over recent months.
Adding to concerns, sentiment towards the housing market — something that had been improving in line with recent gains in property prices, also deteriorated.
“Price expectations declined and a larger majority of respondents thought it was a bad time to buy a house,” said Westpac.
Matthew Hassan, senior economist at Westpac, believes the weakness in February indicates that the risk of a prolonged period of slower economic growth is rising.
“The setback to sentiment comes at a delicate time for the Chinese economy. With growth hitting a 7 year low in 2015 and key industry sectors still struggling, improving consumer confidence had been one of the few promising signs that domestic demand was regaining some traction. That is now less clearly the case,” says Hassan.
“The February update points to continued weak conditions and elevated job-loss fears again weighing on the consumer mood. The softening in spending intentions is particularly disappointing heading into the Lunar New Year, but the uneven picture around real estate is also of concern. At this stage of the cycle, any loss of momentum for either consumer demand or the tentative recovery in housing raises the risk that growth stays weaker for longer.”
Just something else for the global investment community to worry about.