China’s economy lost momentum in the second quarter, with gross domestic product expanding 0.8 per cent against the previous three months as falling exports, weak retail sales and a moribund property sector weighed on growth.
The difficulties facing the world’s second-largest economy will put further pressure on global growth and add to calls for Beijing to step up stimulus measures more than six months after it abandoned tough Covid-19 controls.
The second-quarter growth rate was stronger than the 0.5 per cent forecast in a Reuters analysts’ poll but weaker than the 2.2 per cent quarter-on-quarter expansion in the January-March period.
Year on year, the economy grew 6.3 per cent in the second quarter because of a low-base effect from last year, when large cities such as Shanghai were locked down for an extended period. The Reuters poll had forecast 7.3 per cent growth.
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The National Bureau of Statistics on Monday said “generally speaking”, economic development had “fully returned to normal” in the first half of the year.
“However, we must be aware that the international political and economic circumstance is quite complicated and the foundation for sustained recovery at home is not solid yet,” said NBS spokesperson, Fu Linghui.
China’s economy initially rebounded more strongly from the protracted Covid lockdowns last year but, in recent months, has begun to lose steam on weak household and business confidence.
The situation has been complicated by a slowdown in trade as high interest rates in the West weigh on consumer purchases of Chinese-made goods.
The NBS said exports in June fell 8.3 per cent compared with a year earlier. Retail sales were up 3.1 per cent in June compared with the same period the previous year and down from 12.7 per cent growth in May.
Unemployment for those aged 16 to 24 hit a new high of 21.3 per cent in the second quarter, while overall urban unemployment was stable at 5.2 per cent in June.
Carlos Casanova, senior Asia economist at Union Bancaire Privée, said retail sales and consumption should be the growth engine for China this year so the June growth figure was disappointing.
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He added the government would need to focus on improving private sector sentiment, especially if it wanted to reduce youth unemployment.
“The most disappointing number of them all was the youth employment figure. That doesn’t bode well for sentiment, for stability, for common prosperity,” Mr Casanova said. “They will have to focus on ways to reduce that unemployment number.”
Real estate investment was down 7.9 per cent in the first half of the year compared with the same period a year earlier, the NBS said, with commercial property sales by floor space down 5.3 per cent.
Private investment fell 0.2 per cent in the first half while capital expenditure cooled across the board.
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Infrastructure investment, used by the government to stimulate the economy, grew 7.2 per cent in the first half of the year compared with a year earlier.
“China’s recovery is going from bad to worse,” Harry Murphy Cruise, economist at Moody’s Analytics, said in a research note. “The pandemic hangover is plaguing China’s recovery.”
He said consumers were wary of spending and were saving instead. Businesses did not want to invest, while a nascent recovery in the property market early this year was “fizzling” and foreign households were spending more on services rather than goods such as electronics, hitting China’s exports.
Mr Cruise added the central bank had already cut lending rates and Beijing had extended tax breaks for electric vehicle sales. He expected more help for property and construction. “But that extra support won’t be a silver bullet,” he said. “Increasingly, 2023 is looking like a year to forget for China.”
On the positive side, catering sales were up 21.4 per cent in the first half as consumers returned to restaurants. Industrial output in the renewables sector also rose, with electric vehicles sales up 35 per cent year on year in the first half.
Economists said the focus would now switch to a meeting this month of China’s ruling politburo, which is expected to consider further possible support measures for the economy.
Shares sold off in China following the data release, with a morning drop in the CSI 300 index of Shanghai- and Shenzhen-listed stocks steepening to 1.1 per cent, while the renminbi fell 0.3 per cent against the dollar. – The Financial Times
