Economists expect downward trend to accelerate next year Mainland retail sales grew last month at the slowest pace in nine months, with a further slowdown expected as the economy and inflation cool. Retail sales, the best proxy for domestic demand, rose 20.8 per cent year on year to 979.08 billion yuan (HK$1.11 trillion), the National Bureau of Statistics said yesterday. For the first 11 months, sales totalled 9.78 trillion yuan, up 21.9 per cent year on year, a higher rate of growth than the 16.8 per cent seen last year. But while growth was robust, it was not enough to fulfil Beijing's hope that it would buttress a fast-cooling economy hurt by declining exports and slowing industrial output, economists said. 'China's strong growth in private consumption ended in October, though the month posted a not ugly growth of 22 per cent,' said Gao Shanwen, an economist at Shenzhen-based Essence Securities. 'Things will get worse. The car and construction sectors have been showing weakening signs for months. 'Consumption stimulus measures expected to be announced by the central government soon may be able to offset some declines in retail sales, but the trend is irresistible.' Last month, sales of building materials plummeted 33 per cent year on year and growth in vehicle sales slowed to 7.7 per cent, the statistics bureau said. Jewellery and clothing sales posted 31 per cent and 25 per cent growth, respectively. After deducting consumer inflation, which slowed to 2.4 per cent last month, overall retail sales were still solid, but stiff headwinds are undoubtedly ahead, Merrill Lynch economists said in a research note. 'The market already felt the pinch from the property downturn. Sales of construction materials continued to fall after a 14.8 per cent year on year decline in October,' they said. The analysts expect the property downturn to worsen and to dampen retail sales in coming months. In addition, rising unemployment as a result of contracting exports will likely weigh on consumers' confidence and income. Moody's Economy.com economist Sherman Chan said: 'It is a huge challenge for the Chinese government to boost domestic demand. 'Middle class households are still capable of spending, but those who got burned in the stock and property markets have likely scaled back consumption.' Ha Jiming, an economist with China International Capital Corp, said that, to stimulate consumption, the central government was expected to raise the threshold for individual income tax, increase subsidies to low-income families, reduce fees to buyers of vehicles with small engines and reduce interest rates on car loans. Even if a sharp slowdown in retail sales were avoided, the sector's contribution to economic growth would be limited, economists said. Household consumption has been below 40 per cent of gross domestic product in the past five years and fell last year to as little as 35.3 per cent, a record low for the world's fourth-largest economy. Rising incomes, along with rapid urbanisation, have been underpinning consumption, but the mainland's flimsy welfare net means households still save about 30 per cent of their incomes.