- China’s second-quarter GDP declines since first quarter, year-on-year growth slows sharply
- The widespread blockades of COVID hammer industrial activity, demand
- June shows a rebound in activity, but global risks are clouding the outlook
- New outbreaks of COVID, the Ukrainian war, global prices increase the pressure
- Analysts expect full-year GDP growth to slow in government target of 5.5%
BEIJING, July 15 (Reuters) – China’s economic growth slowed sharply in the second quarter, highlighting the colossal cost of widespread COVID blockchain activity and pointing to persistent pressure over the coming months due to from a darkened global perspective.
Friday’s fragile data adds to fears of a global recession as policymakers raise interest rates to curb rising inflation, causing more hardship for consumers and businesses around the world while they face the challenges of the Ukrainian war and supply chain disruptions.
Gross domestic product during the April-June quarter grew by a warm 0.4% over the previous year, official data showed on Friday. This was the worst sample of the world’s second largest economy since the data series began in 1992, ruling out a 6.9% contraction in the first quarter of 2020 due to the initial shock of COVID.
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It also lost forecast of a 1.0% increase in a Reuters analyst survey and marked a sharp slowdown from 4.8% growth in the first quarter.
In quarter-on-quarter terms, GDP fell by 2.6% in the second quarter compared to the previous quarter, compared to expectations of a decline of 1.5% and a revised gain of 1.4% on previous quarter.
“China’s economy has been on the verge of falling into stagnation, although the worst has happened since May-June. 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 domestic growth, it is likely that the Chinese government will deploy economic stimulus measures from now on to accelerate its growth, but there are major obstacles for PBOC to further reduce interest rates, as which would favor inflation, which has remained relatively low today. “
In March and April, total or partial blockades were imposed on major centers across the country, including the commercial capital Shanghai, which recorded a year-on-year contraction of 13.7% of GDP in the second quarter. Production in the capital, Beijing, fell 2.9% year-on-year in the same quarter.
While many of these brakes have lifted since then and June data showed signs of improvement, analysts do not expect a rapid economic recovery. China is pursuing its tough zero-COVID policy amid new eruptions, the country’s real estate market is in a deep fall and the global outlook is darkening.
The imposition of new confinements in some cities and the arrival of the highly contagious BA.5 variant have increased concern among businesses and consumers over a prolonged period of uncertainty. Read more
During the first half of the year, GDP grew by 2.5% over the previous year.
GOAL FOR THE WHOLE YEAR OUTSIDE THE MURDER
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 eliminating its strict zero strategy. -COVID. A Reuters poll predicted that 2022 growth would slow to 4%. Read more
Many believe the space for the central bank to further ease policy could be limited by concerns about capital outflows as the US Federal Reserve and other economies aggressively raise interest rates to fight rising inflation . Read more
Rising consumer inflation in China, while not as hot as in other major economies, may also increase constraints on easing monetary policy, analysts said.
“We believe markets have become too optimistic about growth in the second half,” Nomura analysts said.
Data on June activity, also released on Friday, showed that China’s industrial production grew 3.9% in June over the previous year, accelerating from a 0.7-percent increase. % in May.
Investment in fixed assets, an engine that Beijing has to boost growth, grew 6.1% better than expected in the first six months of the year compared to the previous year, compared to an increase of 6.2% between January and May.
Retail sales also improved, 3.1% more than a year ago in June, and marked the fastest growth in four months, after authorities lifted the two-month confinement in Shanghai. Analysts expected flat growth after the 6.7% fall in May.
“Retail growth indicates that blockades have been the main friction in consumption,” said Jacob Cooke, CEO of WPIC Marketing + Technologies, in Beijing.
“Consumers still have some uncertainty about the blockages, but with indications that future blockades will not be as strict, we are optimistic that consumption will continue to recover in the second half.”
Hard grinding
However, challenges abound for consumers and businesses.
The employment situation remained fragile. The nationwide survey-based unemployment rate 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.
An unstable recovery in China’s capital-hungry real estate sector is being further pressured by a growing number of home buyers across the country slowing down mortgage payments until developers resume construction of precautionary housing, further weakening buyers ’confidence in a falling market.
Data from Friday showed that house price growth stagnated in June on a monthly basis, while real estate investment contracted for the fourth consecutive month and sales lengthened their falls by another 18, 3%. Read more
Policymakers have pledged to help local governments deliver on real estate projects on time and plan to increase spending on infrastructure to revive the economy. Still, headwinds suggest a hard road ahead.
“Even with a little massage on the numbers, it’s hard to see how the government’s goal of‘ around 5.5% ’growth this year can be achieved,” said Julian Evans-Pritchard, economist senior of China, in Capital Economics.
“That would require a big acceleration in the second half of this year, which is unlikely.”
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Report by Kevin Yao, Stella Qiu and Ellen Zhang Shri Navaratnam Edition
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