- China’s GDP for the second quarter is shrinking from the first quarter, and Y / Y growth is declining sharply
- Widespread COVID shutdown inhibits industrial activity, demand
- June shows setbacks in activity, but global risks darken the outlook
- New covid flare-ups, Ukraine war, global interest rate hike, high pressure
- Analysts expect GDP growth for the full year to be in line with the government’s target of 5.5%
BEIJING, July 15 (Reuters) – China’s economic growth slowed sharply in the second quarter, highlighting the colossal strain on activity from widespread COVID shutdowns and pointing to sustained pressure in the coming months from a darker global outlook.
Friday’s fragile data raises fears of a global recession as politicians raise interest rates to curb soaring inflation, creating more adversity for consumers and businesses around the world as they struggle with the challenges of Ukraine’s war and supply chain disruptions.
Gross domestic product in the April-June quarter grew lukewarm 0.4% from the previous year, official data showed on Friday. It was the worst result for the world’s second largest economy since the data series started in 1992, excluding a 6.9% contraction in the first quarter of 2020 due to the first COVID shock.
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The forecast of a 1.0% increase in a Reuters survey among analysts was also missed, marking a sharp decline from 4.8% growth in the first quarter.
On a quarter-on-quarter basis, GDP fell 2.6% in the second quarter from the previous quarter, compared with expectations of a decline of 1.5% and a revised 1.4% gain in the previous quarter.
“China’s economy has been on the verge of falling into stagflation, although the worst is over from the May-June period. You can rule out the possibility of a recession, or two consecutive quarters of contraction,” said Toru Nishihama, chief economist. at the Dai-ichi Life Research Institute in Tokyo.
“Given the tame growth, it is likely that the Chinese government will introduce economic stimulus measures from now on to offset the declining growth, but the obstacles are high for the PBOC to cut interest rates further, as it will lead to inflation that has been kept relatively low today. “
Full or partial shutdowns were imposed in major centers across the country in March and April, including the commercial capital Shanghai, which saw a year-on-year contraction of 13.7% in GDP in the second quarter. Production in the capital Beijing shrank by 2.9% year-on-year in the same quarter.
While many of these curbs have since been lifted, and June data showed signs of improvement, analysts do not expect a rapid economic recovery. China is sticking to its tough zero-COVID policy in the midst of new flares, the country’s real estate market is in deep decline and the global outlook is darker.
The introduction of new roadblocks in some cities and the advent of the highly contagious BA.5 variant have raised concerns among businesses and consumers about a longer period of uncertainty. read more
For the first half of the year, GDP grew by 2.5% from the previous year.
FULL YEAR OBJECTIVES OUTSIDE RANGE
China has increased political support for the economy, although analysts say the official growth target of around 5.5% for this year will be difficult to achieve without compromising its strict zero-COVID strategy. A poll by Reuters estimates that growth in 2022 will slow to 4%. read more
Many believe that room for the central bank to ease its policies may be further limited by concerns about capital outflows, as the US Federal Reserve and other economies aggressively raise interest rates to combat rising inflation. read more
China’s rising consumer inflation, although not as strong as in other major economies, could also add constraints to easing monetary policy, analysts said.
“We believe the markets have become overly optimistic about growth in the second half of the year,” said Nomura analysts.
Data on June activity, also released on Friday, showed that China’s industrial production grew by 3.9% in June from the previous year, increasing from an increase of 0.7% in May.
Fixed investment, a driver that Beijing expects to support growth, grew by better than expected 6.1% in the first six months of the year from the previous year, compared with a jump of 6.2% in January-May.
Retail sales also improved, up 3.1% from a year ago in June, marking the fastest growth in four months, following the lifting of a two-month shutdown in Shanghai. Analysts had expected flat growth after the fall of corn of 6.7%.
“Retail growth indicates that shutdowns have been the primary burden on consumption,” said Jacob Cooke, CEO of WPIC Marketing + Technologies, in Beijing.
“Consumers still have some uncertainty about shutdowns, but with indications that future shutdowns will not be as severe, we are optimistic that consumption will continue to pick up again in H2.”
However, there are many challenges for consumers and businesses.
The employment situation was still fragile. Nationwide survey-based unemployment fell to 5.5% in June, from 5.9% in May – in line with the government’s target. But youth unemployment rose to a record 19.3% in June.
A faltering improvement in China’s capital-hungry real estate sector is being pushed further by a growing number of homebuyers across the country who are stopping mortgage payments until developers resume construction of pre-sold homes, further weakening buyers’ confidence in a market downturn.
Data on Friday showed that house price growth stopped in June on a monthly basis, while real estate investment fell for the fourth month in a row and sales increased by a further 18.3%. read more
Politicians have promised to help local authorities deliver real estate projects on time, and plan to increase infrastructure spending to revive the economy. Nevertheless, the headwinds for growth indicate a hard blow ahead.
“Even with a little massage of the numbers, it is difficult to see how the government’s target of ‘around 5.5%’ growth this year can be achieved,” said Julian Evans-Pritchard, senior China economist at Capital Economics.
“It will take a huge acceleration in the second half of this year, which is unlikely.”
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Reporting by Kevin Yao, Stella Qiu and Ellen Zhang Editing by Shri Navaratnam
Our standards: Thomson Reuters Trust Principles.