What: Consumer confidence remains low in China as the country’s youth unemployment has reached record heights and anxiety over Covid-19 lingers.

Why it is important: Results from 618, a key shopping event and indicator of the overall health of China’s consumer market, saw its slowest growth rate in three years.

The results from the promotional event are indicative of the health of China’s consumer market, and spending on major e-commerce platforms only rose by 5.4%.

The wealthiest consumers are helping drive recovery in the luxury sector, however other consumers are remaining cautious.

National retail sales growth in China slowed to 12.7% in May, a clear deceleration from the 18.4% in April. This deceleration combined with weaker-than-expected data resulted in economists at key banks lowering their growth forecasts for the year.

China’s youth jobless rate has risen to 20.8% in May, which has set a new record and is four times the country’s overall unemployment rate.

Another contributing factor is continued anxiety over Covid-19 as another variant spreads, creating more uncertainty.

The confidence of the consumer isn’t fully there yet across the board, but in the luxury sector, high net worth individuals are making up for the purchases that aren’t being made by mass consumers. However, there is still an uneasiness for consumers and confidence still isn’t as high as it should be.

The pandemic not only impacted the economy but also consumer psychology. Chinese consumers aren’t as confident in the future and are more focused on the country’s negative demographics, especially younger Chinese consumers who are experiencing their first slowdown.

Customers are becoming more value-oriented, presenting opportunities for new and niche brands to gain traction as consumers show more interest in quality and features rather than big labels.

By sector, double-digit growth has been seen in categories like nutraceuticals and pet. Health supplements are seeing strength as the self-care trend increases and fragrances are also growing as they are viewed as an affordable luxury.

Why consumer sentiment remains subdued in China