by Kevin Yao and Joe Cash
BEIJING (Reuters) – China’s economy recorded sluggish second-quarter growth amid slowing domestic and external demand as post-COVID-19 momentum quickly waned, which could prompt authorities to adopt new stimulus measures to support activity.
These stimulus measures to get the economy back on track (real estate investment fell by 20.6% in June year on year) and curb unemployment (that of young people increased to 21.3% in June) risk however increase the country’s debt and create structural distortions.
According to figures released Monday by the National Bureau of Statistics, in seasonally adjusted data, the gross domestic product of the world’s second largest economy increased by only 0.8% over the April-June period compared to the previous quarter.
Analysts polled by Reuters had forecast a 0.5% rise in the second quarter after growing 2.2% in the first quarter as health restrictions were lifted.
On an annual basis, GDP grew by 6.3% in the second quarter, against 4.5% in the first three months of the year, but this rate is significantly lower than the consensus which was expecting growth of 7.3% .
CONTRASTING DATA
The annual pace is the fastest since the second quarter of 2021, although it is heavily skewed by the economic impact of health restrictions last year in Shanghai and other major cities.
“The data suggests that China’s post-COVID boom is clearly over,” said Carol Kong, an economist at Commonwealth Bank of Australia in Sydney.
“Major indicators are up from May’s figures, but they still paint a grim and breathless recovery, while youth unemployment hits record highs,” she added.
Other data released alongside GDP shows retail sales in China rose 3.1% in June year on year, marking a sharp deceleration from May when they jumped 12, 7%. Analysts had expected retail sales to rise 3.2%.
Industrial production, on the other hand, recorded an unexpected acceleration in its growth last month to 4.4% over one year, after 3.5% in May. However, demand remains timid.
Private investment in fixed assets fell 0.2% in the first six months of the year, in stark contrast to the 8.1% growth in public investment and suggesting low confidence on the part of private businesses .
Data released last week had already shown that China’s post-COVID recovery was rapidly running out of steam, with exports registering their biggest decline in three years due to slowing domestic and overseas demand. The continued decline in the real estate market, which accounts for about a quarter of the economy, weighed on confidence.
The weak momentum of the Chinese economy and the risks of a global recession have fueled hopes for increased action by Chinese officials to support activity.
According to experts and economists, the Chinese authorities should take further stimulus measures, especially in terms of budgetary expenditure to finance large-scale infrastructure projects. They could also increase their support for consumers and private companies and relax the rules in real estate.
RISK ON THE TARGET OF 5% OF GDP IN 2023
Analysts, however, doubt that this will be implemented quickly as all eyes are now on the Politburo meeting, the ruling body of the Chinese Communist Party (CCP), scheduled for the end of the month, during which the main leaders could set policy for the rest of the year.
Equity markets in Asia ended in the red, while the Chinese yuan depreciated after the release of this data.
Even if China remains on track to achieve its modest growth target of 5% for this year, the risk of a failure for the second consecutive year cannot be ruled out, say some economists.
“The 6.3% figure is quite disappointing, so it’s clear that the momentum is slowing down,” said Alvin Tan, head of Asia currency strategy at RBC Capital Markets in Singapore.
“At this rate of deceleration, there is now a risk that the growth target will not be met – that 5% may not be achieved if the economy continues to decelerate at this rate. So I think it is even more urgent to build political support in the near future,” he said.
China’s economy grew only 3 percent last year due to COVID-19 outbreak restrictions, missing the official target.
(Reporting Kevin Yao, Ellen Zhang and Joe Cash; writing by Shri Navaratnam, French version Claude Chendjou, editing by Kate Entringer)
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