(Bloomberg) -- Profits at China’s industrial firms fell at the sharpest pace since April last year, bolstering the case for urgent measures to lift demand as Beijing rolls out a strong stimulus package.
Industrial profits at large Chinese companies decreased 17.8% on year in August, after a 4.1% gain in July, the National Bureau of Statistics said in a statement Friday. Earnings growth grew 0.5% to 4.65 trillion yuan in the first eight months compared to the same period last year.
“Deterioration in the industrial sector, along with weak readings on growth and signs of deflationary risks, probably fed into decisions at the highest level to ramp up stimulus,” said David Qu, economist at Bloomberg Economics.
Qu had forecast a deceleration to 3.5% last month but expected growth to stay steady in the January-August period relative to the first seven months of the year. The figures are a key gauge of measuring the financial health of factories, mines and utilities that can affect their investment decisions in the months to come.
The NBS blamed the August slowdown — the first drop in five months — on a lack of market demand, the effect of high temperature and floods in some areas, as well as a high base of comparison.
“Domestic consumer demand is still weak, the external environment is complex and changeable, and the foundation for the recovery of industrial profit still needs to continue to consolidate,” Yu Weining, NBS statistician, said in a statement accompanying the release.
The latest reading came against the backdrop of a slower-than-expected increase in industrial output last month, when it extended a weakening streak to the longest in almost three years. The slowdown became more apparent during a weak earnings season that showed little sign of any imminent recovery in consumption.
Thinner profit margins reflect the frailty of the broader economy in the absence of stronger domestic demand. Underscoring the drag on earnings, producer prices have been falling since late 2022, intensifying fears that deflation was becoming entrenched in China.
With signs mounting that the world’s second-largest economy risked missing Beijing’s goal of expanding around 5%, the government pivoted this week and unveiled a broad package of stimulus measures to revive growth. The country’s top leadership also used its monthly huddle to call for stronger fiscal support and other steps that signaled a growing urgency to arrest the slowdown.
(Updates with comments. An earlier version corrected a forecast figure.)
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