- China’s Q2 GDP shrinks from Q1, Y/Y progress slows sharply
- Widespread COVID lockdowns hammer industrial exercise, demand
- June exhibits bounce in exercise, however global risks darken outlook
- Fresh COVID flare-ups, Ukraine War, global price hikes heap stress
- Analysts anticipate full yr GDP progress to lag govt goal of 5.5%
BEIJING, July 15 (Reuters) – China’s financial progress slowed sharply in the second quarter, highlighting the colossal toll on exercise from widespread COVID lockdowns and pointing to persistent stress over coming months from a darkening global outlook.
Friday’s frail knowledge provides to fears of a global recession as policymakers jack up rates of interest to curb hovering inflation, heaping extra hardship on customers and companies worldwide as they grapple with challenges from the Ukraine warfare and provide chain disruptions.
Gross home product in the April-June quarter grew a tepid 0.4% from a yr earlier, official knowledge confirmed on Friday. That was the worst displaying for the world’s second-biggest economy because the knowledge sequence started in 1992, excluding a 6.9% contraction in the primary quarter of 2020 because of the preliminary COVID shock.
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It additionally missed forecast of a 1.0% acquire in a Reuters ballot of analysts and marked a pointy slowdown from 4.8% progress in the primary quarter.
On a quarter-on-quarter foundation, GDP fell 2.6% in the second quarter from the earlier quarter, in contrast with expectations for a 1.5% decline and a revised 1.4% acquire in the earlier quarter.
“China’s economy has stood on the edge of falling into stagflation, although the worst is over as of the May-June period. You can rule out the possibility of a recession, or two straight quarters of contraction,” stated Toru Nishihama, chief economist at Dai-ichi Life Research Institute in Tokyo.
“Given the tame growth, China’s government is likely to deploy economic stimulus measures from now on to rev up its flagging growth, but hurdles are high for PBOC to cut interest rates further as it would fan inflation which has been kept relatively low at present.”
Full or partial lockdowns had been imposed in main centres throughout the nation in March and April, together with the business capital Shanghai, which noticed a year-on-year contraction of 13.7% in GDP in the second quarter. Output in the capital Beijing shrank 2.9% year-on-year in the identical quarter.
While a lot of these curbs have since been lifted, and June knowledge supplied indicators of enchancment, analysts don’t anticipate a fast financial restoration. China is sticking to its powerful zero-COVID coverage amid recent flare-ups, the nation’s property market is in a deep droop and the global outlook is darkening.
The imposition of recent lockdowns in some cities and the arrival of the highly-contagious BA.5 variant have heightened considerations amongst companies and customers a couple of extended interval of uncertainty. learn extra
For the primary half of the yr, GDP grew 2.5% from a yr earlier.
FULL-YEAR TARGET BEYOND REACH
China has been ramping up coverage help for the economy, though analysts say the official progress goal of round 5.5% for this yr will probably be onerous to attain with out casting off its strict zero-COVID technique. A Reuters ballot forecast 2022 progress to sluggish to 4%. learn extra
Many consider room for the central financial institution to ease coverage additional could possibly be restricted by worries about capital outflows, because the U.S. Federal Reserve, and different economies, aggressively increase rates of interest to battle hovering inflation. learn extra
China’s rising client inflation, although not as scorching as in different main economies, additionally could add to constraints on financial coverage easing, analysts stated.
“We believe markets have become overly optimistic about growth in H2,” Nomura analysts stated.
Data on June exercise, additionally launched Friday, confirmed that China’s industrial output grew 3.9% in June from a yr earlier, quickening from a 0.7% rise in May.
Fixed asset-investment, a driver Beijing is counting to shore up progress, grew by a greater than-expected 6.1% in the primary six months of the yr from a yr earlier, in contrast with a 6.2% soar in January-May.
Retail gross sales additionally improved, up 3.1% from a yr in the past in June and marked the quickest progress in 4 months, after authorities lifted a two-month lockdown in Shanghai. Analysts had anticipated flat progress after May’s 6.7% drop.
“Retail growth indicates that lockdowns have been the primary drag on consumption,” stated Jacob Cooke, CEO of WPIC Marketing + Technologies, in Beijing.
“Consumers are still harbouring some uncertainty about lockdowns, but with indications that future lockdowns won’t be as strict, we’re optimistic that consumption will continue to recover in H2.”
However, challenges abound for customers and companies.
The employment state of affairs remained fragile. The nationwide survey-based jobless price eased to five.5% in June, from 5.9% in May – in line with the federal government’s goal. But youth unemployment climbed to a document of 19.3% in June.
A shaky restoration in China’s capital-starved property sector is being pressured additional by a rising variety of homebuyers throughout the nation halting mortgage funds till builders resume building of pre-sold houses, additional denting patrons’ confidence in a market downturn.
Data on Friday confirmed that dwelling costs progress stalled in June on a month-to-month foundation, whereas property funding contracted for a fourth straight month and gross sales prolonged their declines by one other whopping 18.3%. learn extra
Policymakers have pledged to assist native governments ship property initiatives on time, and plan to spice up spending on infrastructure to revive the economy. Still, the headwinds to progress recommend a tough grind forward.
“Even with some massaging of the figures, it’s hard to see how the government’s target of ‘around 5.5%’ growth this year can be attained,” Julian Evans-Pritchard, senior China economist, at Capital Economics stated.
“That would 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: The Thomson Reuters Trust Principles.