China’s Economy Takes a Deeper Hit as Retail Sales Turn Negative

The fresh signs of slowing growth in China will add to fears that the worst is yet to come for the global economy, especially with many economists expecting a recession in the U.S. over the next 12 months.

Domestically, the deteriorating economic picture presents a challenge for

Xi Jinping,

who last month secured a third term as leader of China’s ruling Communist Party. Mr. Xi has consolidated control over economic policy-making. Many economists and investors are looking for signs that he will adopt a more pragmatic approach as rules that he has championed to rein in property developer debt and eradicate Covid-19 have crushed sentiment.

The country is set to miss its official target of around 5.5% gross domestic product growth this year, with the economy expanding by only 3% during the first nine months.

In a tacit acknowledgment of the economic pain their policies have wrought, Chinese authorities on Friday issued a set of 16 measures that extend funding relief to highly-indebted developers and strengthen housing supplies, among other things.

On the same day, China’s health authority published 20 measures aimed at reducing the economic and societal impacts of its pandemic controls.

“The key question on investors’ minds is whether there will be follow-up policies in the same direction going forward,” noted

Zhiwei Zhang,

chief economist at Hong Kong-based Pinpoint Asset Management.

Last month, consumer sentiment remained weak and labor market conditions barely improved as China battled its broadest-based Covid-19 outbreaks since the Omicron variant of the coronavirus first began to spread widely in the fall of last year.

Daily new Covid infection counts have surged to more than 11,000 on average over the past week, more than tripling from a week earlier.

Two large provinces—Guangdong, a major export hub in southern China, and Henan, home to

Apple Inc.’s

main iPhone assembler—have stepped up restrictions over the past month. In Beijing, schools have been shut as many residents have been confined to their homes again as cases surge.

The new restrictions took a toll on retail sales, a key gauge of domestic consumption, which fell 0.5% in October from a year earlier, according to China’s National Bureau of Statistics—the first such year-over-year decline since May, when Shanghai was stuck in a grueling monthslong lockdown.

Economists polled by The Wall Street Journal had expected a 0.7% increase in retail sales for October, compared with a gain of 2.5% in September.

Sales of consumer electronics, home decorations and furniture all fell from a year earlier, while demand for smartphone upgrades also slowed. Spending on restaurant dining dropped by nearly 9% from a year earlier, though sales of medicine and fresh food ticked higher.

“Covid measures in October affected consumer behavior even though it was a month containing long holidays,” said

Iris Pang,

chief China economist at ING, referring to the weeklong National Day holiday that began on Oct. 1.

Factory output and investment, which have both benefited from Beijing’s economic relief plans, decelerated in October.

Industrial production rose 5% from a year earlier in October, slowing from September’s 6.3% growth, amid falling export demand and weakening domestic sales. Growth in the auto sector slowed particularly sharply, rising just 8.6% in October from a year earlier, down from an increase of 25.4% in September.

Fixed-asset investment, including government spending on infrastructure projects, rose 5.8% in the first 10 months of 2022 from a year earlier, a step down from the 5.9% year-over-year growth for the first nine months.

While China’s headline unemployment rate held steady at 5.5%, rates of joblessness in 31 major cities edged up to 6% in October from 5.8% for the previous month as factories slashed head counts amid dwindling orders. Covid-related curbs also hammered the service sector, which employs roughly half of China’s working population.

Despite government officials’ repeated efforts to reverse a prolonged slide in property sales, developers and households alike have remained cautious as they await signs of stabilization in the sector.

Home sales by value fell 28.2% from a year earlier for the first 10 months of 2022, compared with a 28.6% decrease for the first nine months, the National Bureau of Statistics said Tuesday.

Property investment fell 8.8% from a year earlier for the first 10 months of the year, worsening from a 8% decline for the first nine months.

Shen Meng,

director of Chanson & Co., a Beijing-based investment bank, said it is still too early to tell whether the property market has reached a turning point, following the new host of measures unveiled last week.

Fear of job losses likely have prompted prospective home buyers to re-evaluate their plans, while the sustained decline in home prices has dented confidence in property as a surefire investment, Mr. Shen added.

“The question is how many people still dare to invest in property now,” he said.

Many economists predict China’s economy will grow faster in year-over-year terms next year, especially if the country begins to lift Covid restrictions. GDP growth is expected to rebound to 4.5% next year from an expected expansion of 3.1% in 2022, according to UBS.

Even so, many underlying troubles are unlikely to be resolved in the near term, as Beijing’s stimulus efforts have been heavily skewed toward helping manufacturers and ramping up government-led investment while doing little to improve consumer sentiment.

And China is unlikely to be able to count on exports to drive growth as recession risks loom over the U.S. and other key trading partners.

“Progress (in China’s reopening) may be slow, painful and bumpy,” Ting Lu, chief China economist at Nomura, wrote in a note to clients on Tuesday, predicting that the release of pent-up demand may only be moderate and settle at below pre-Covid levels.

—Grace Zhu and Xiao Xiao contributed to this article.

Write to Stella Yifan Xie at stella.xie@wsj.com

The fresh signs of slowing growth in China will add to fears that the worst is yet to come for the global economy, especially with many economists expecting a recession in the U.S. over the next 12 months.

Domestically, the deteriorating economic picture presents a challenge for

Xi Jinping,

who last month secured a third term as leader of China’s ruling Communist Party. Mr. Xi has consolidated control over economic policy-making. Many economists and investors are looking for signs that he will adopt a more pragmatic approach as rules that he has championed to rein in property developer debt and eradicate Covid-19 have crushed sentiment.

The country is set to miss its official target of around 5.5% gross domestic product growth this year, with the economy expanding by only 3% during the first nine months.

In a tacit acknowledgment of the economic pain their policies have wrought, Chinese authorities on Friday issued a set of 16 measures that extend funding relief to highly-indebted developers and strengthen housing supplies, among other things.

On the same day, China’s health authority published 20 measures aimed at reducing the economic and societal impacts of its pandemic controls.

“The key question on investors’ minds is whether there will be follow-up policies in the same direction going forward,” noted

Zhiwei Zhang,

chief economist at Hong Kong-based Pinpoint Asset Management.

Last month, consumer sentiment remained weak and labor market conditions barely improved as China battled its broadest-based Covid-19 outbreaks since the Omicron variant of the coronavirus first began to spread widely in the fall of last year.

Daily new Covid infection counts have surged to more than 11,000 on average over the past week, more than tripling from a week earlier.

Two large provinces—Guangdong, a major export hub in southern China, and Henan, home to

Apple Inc.’s

main iPhone assembler—have stepped up restrictions over the past month. In Beijing, schools have been shut as many residents have been confined to their homes again as cases surge.

The new restrictions took a toll on retail sales, a key gauge of domestic consumption, which fell 0.5% in October from a year earlier, according to China’s National Bureau of Statistics—the first such year-over-year decline since May, when Shanghai was stuck in a grueling monthslong lockdown.

Economists polled by The Wall Street Journal had expected a 0.7% increase in retail sales for October, compared with a gain of 2.5% in September.

Sales of consumer electronics, home decorations and furniture all fell from a year earlier, while demand for smartphone upgrades also slowed. Spending on restaurant dining dropped by nearly 9% from a year earlier, though sales of medicine and fresh food ticked higher.

“Covid measures in October affected consumer behavior even though it was a month containing long holidays,” said

Iris Pang,

chief China economist at ING, referring to the weeklong National Day holiday that began on Oct. 1.

Factory output and investment, which have both benefited from Beijing’s economic relief plans, decelerated in October.

Industrial production rose 5% from a year earlier in October, slowing from September’s 6.3% growth, amid falling export demand and weakening domestic sales. Growth in the auto sector slowed particularly sharply, rising just 8.6% in October from a year earlier, down from an increase of 25.4% in September.

Fixed-asset investment, including government spending on infrastructure projects, rose 5.8% in the first 10 months of 2022 from a year earlier, a step down from the 5.9% year-over-year growth for the first nine months.

While China’s headline unemployment rate held steady at 5.5%, rates of joblessness in 31 major cities edged up to 6% in October from 5.8% for the previous month as factories slashed head counts amid dwindling orders. Covid-related curbs also hammered the service sector, which employs roughly half of China’s working population.

Despite government officials’ repeated efforts to reverse a prolonged slide in property sales, developers and households alike have remained cautious as they await signs of stabilization in the sector.

Home sales by value fell 28.2% from a year earlier for the first 10 months of 2022, compared with a 28.6% decrease for the first nine months, the National Bureau of Statistics said Tuesday.

Property investment fell 8.8% from a year earlier for the first 10 months of the year, worsening from a 8% decline for the first nine months.

Shen Meng,

director of Chanson & Co., a Beijing-based investment bank, said it is still too early to tell whether the property market has reached a turning point, following the new host of measures unveiled last week.

Fear of job losses likely have prompted prospective home buyers to re-evaluate their plans, while the sustained decline in home prices has dented confidence in property as a surefire investment, Mr. Shen added.

“The question is how many people still dare to invest in property now,” he said.

Many economists predict China’s economy will grow faster in year-over-year terms next year, especially if the country begins to lift Covid restrictions. GDP growth is expected to rebound to 4.5% next year from an expected expansion of 3.1% in 2022, according to UBS.

Even so, many underlying troubles are unlikely to be resolved in the near term, as Beijing’s stimulus efforts have been heavily skewed toward helping manufacturers and ramping up government-led investment while doing little to improve consumer sentiment.

And China is unlikely to be able to count on exports to drive growth as recession risks loom over the U.S. and other key trading partners.

“Progress (in China’s reopening) may be slow, painful and bumpy,” Ting Lu, chief China economist at Nomura, wrote in a note to clients on Tuesday, predicting that the release of pent-up demand may only be moderate and settle at below pre-Covid levels.

—Grace Zhu and Xiao Xiao contributed to this article.

Write to Stella Yifan Xie at stella.xie@wsj.com