BEIJING. — The slowdown in China’s economy deepened in August, with growth in industrial production at its weakest 17 1/2 years amid spreading pain from a trade war with the United States and softening domestic demand.

Retail sales and investment gauges worsened too, data released yesterday showed, reinforcing views that China is likely to cut some key interest rates this week for the first time in over three years to prevent a sharper slump in activity.

Despite a slew of growth-boosting measures since last year, the world’s second-largest economy has yet to stabilise, and analysts say Beijing needs to roll out more stimulus to ward off a sharper slowdown.

Industrial output growth unexpectedly weakened to 4,4 percent in August from the same period a year earlier, the slowest pace since February 2002 and receding from 4,8 percent in July.

Analysts polled by Reuters had forecast a pick-up to 5,2 percent.

In particular, the value of delivered industrial exports fell 4,3 percent on-year, the first monthly decline since at least two years, Reuters records showed, reflecting the toll that the escalating Sino-US trade war is taking on Chinese manufacturers.

The protracted trade war escalated dramatically last month, with President Donald Trump announcing new tariffs on Chinese goods from September 1, and China letting its yuan currency sharply weaken days later.

After Beijing hit back with retaliatory tariffs, Trump said existing levies would also be raised in coming months, in October and December.

While the two sides are set to resume face-to-face negotiations in early October, most analysts do not expect a durable trade deal, or even a significant de-escalation, any time soon.

Premier Li Keqiang said in an interview published ahead of the data on Monday that it was “very difficult” for the economy to grow at 6 percent or more and that it faced “downward pressure”.

Traders expect a cut in the central bank’s medium-term loan facility rate (MLF) as early as today, which would open the way for a reduction in the new loan prime benchmark rate (LPR) later in the week.

Several analysts said in recent weeks that China’s economic growth was already testing the lower end of Beijing’s full-year target of around 6-6,5 percent, which is likely to spur more policy easing. Second-quarter growth cooled to 6,2 percent, the weakest in nearly 30 years.

“The key downside risk is the authorities not stepping up policy support sufficiently,” said Louis Kuijs, Head of Asia Economics at Oxford Economics.

Room for stimulus is believed to be limited by worries about rising debt risks, with policy easing by the People’s Bank of China (PBOC) expected to be more restrained than the US Federal Reserve or European Central Bank.

Ting Lu, Chief China Economist at Nomura wrote in a note after the data release that a cut in the MLF rate by around 10 basis points today had become more likely. — Reuters.

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