China’s retail sales to weaken this year as falling home prices, jobs outlook feed consumer insecurity: UBS

Retail sales are expected to climb 5.5 per cent in 2024, one percentage point lower than the estimated 6.5 per cent in 2023, according to the Swiss bank

A sharp drop in homes prices has caused hundreds of thousands of families across the country to lose millions of yuan in net worth

2-MIN READ2-MIN

Chinese consumers are reluctant to spend amid fears about job security and falling property values. Photo: Bloomberg

Published: 8:00am, 9 Jan 2024

Falling home prices and fears about job prospects will deter Chinese consumers from freely spending on goods such as clothes and home appliances, weighing on the nation’s retail sales growth, according to UBS.

Retail sales are expected to climb 5.5 per cent in 2024, one percentage point lower than the estimated 6.5 per cent rise last year, according to the Swiss bank’s estimates.

“A drop in home prices will have a negative psychological impact on consumers since they feel their net worth has shrunk,” Christine Peng, a UBS analyst, said at a media briefing in Shanghai on Monday. “As a result, consumers are reluctant to tap their bank savings to spend.”

Consumption has long been a major growth driver of China’s economy as the country’s 400 million middle-income residents chase high-quality goods to improve their living standards.

A sharp drop in home prices since the second half of 2023 has caused hundreds of thousands of families across the country to lose millions of yuan in net worth, while government incentives such as lower mortgage down payments and reduced taxes have yet to drive up property values.