China’s economic imbalances appeared to grow in May amid the fallout from the US-Israel war on Iran, as the country’s sluggish retail sales highlighted persistent weakness in domestic demand even as exports skyrocketed.

Retail sales, a key gauge of consumer spending, fell by 0.6 per cent year on year in May, the first decline since China lifted its Covid-19 pandemic lockdown at the end of 2022 and down from a 0.2 per cent increase in April, according to data released by the National Bureau of Statistics (NBS) on Tuesday.

The lacklustre reading – which was below economists’ forecast of a modest 0.09 per cent year-on-year increase in a Wind poll – came despite a bump in consumer activity over the Labour Day holiday, suggesting household spending remains cautious amid an uncertain job market.

Industrial output, meanwhile, grew by 4.5 per cent year on year in May – up from 4.1 per cent the previous month, but lower than the 5.7 per cent in March – as China’s factories relied on soaring exports to offset an apparent recent softening of domestic demand.

China’s overall fixed-asset investment – covering major items such as infrastructure, manufacturing and property construction – fell by 4.1 per cent year on year during the January-May period, compared with a 1.6 per cent decline over the first four months of the year.

Fu Linghui, a spokesman for the NBS, said at a press briefing that the economy remained broadly stable in May and continued to demonstrate resilience despite external uncertainties.

“However, we should be aware that the external environment is increasingly complex and volatile, the domestic imbalance between strong supply and weak demand is acute,” Fu said.