China's retail sales expected to recover with high volatility: Fitch

ISTANBUL

China’s retail sales are expected to recover after the lifting of coronavirus restrictions but the recovery in consumption is likely to be volatile and more difficult than those in many other major economies, Fitch Ratings said Thursday.

Some of the major reasons behind this are a weak employment and income outlook, declining home prices, rising household leverage, and a lack of direct stimulus, the global rating agency said in a statement.

"The surge in infections in China is reflected in the 1.8% year-on-year contraction in retail sales in December 2022, which led to a 0.2% decline for the full year," it said.

The agency, however, said it expects strong growth in retail sales of essential goods such as food and beverages, adding apparel and cosmetics products, which saw sluggish demand last year due to mobility restrictions, are likely to see stronger growth as demand returns.

It said a slowdown in the housing sector has undermined Chinese consumers' wealth, which accounted for around 59% of their urban household assets in 2019, and noted that "rising household indebtedness has also impaired Chinese consumers’ purchasing power."