(Reuters) – China’s economy slowed in the second quarter, data showed on Monday, as a protracted property downturn and job insecurity weighed on domestic demand, keeping alive expectations Beijing will need to unleash more stimulus.
The world’s second-largest economy grew 4.7% in April-June, official data showed, its slowest since the first quarter of 2023 and missing a 5.1% analysts’ forecast in a Reuters poll. It was also down from the 5.3% expansion in the previous quarter. KEY POINTS
* Q2 GDP +4.7% y/y (f’cast +5.1% y/y, Q1 +5.3%)
* Q2 GDP +0.7% q/q; (f’cast +1.1%, Jan-March Q1 +1.5% revised)
* 2024 GDP growth seen at 5.0%, 4.5% in 2025
* June industrial output +5.3% y/y (f’cast +5.0%, May +5.6%)
* June retail sales +2.0% y/y (f’cast +3.3%, May +3.7%)
* H1 fixed asset investment +3.9% y/y (f’cast +3.9%, Jan-May +4%)
* H1 property investment -10.1% y/y (Jan-May -10.1%)
COMMENTARY:
WOEI CHEN HO, ECONOMIST, UOB, SINGAPORE
“We wouldn’t say the 5% full-year target is out of reach for now. But more support will be necessary … probably via monetary policy. There could be further short-term rate cuts.”
ZHAOPENG XING, SENIOR CHINA STRATEGIST, ANZ, SHANGHAI
“The 5% GDP growth for 2024 is not a done deal. We maintain our full-year forecast at 4.9%. The market will place a high hope on the third plenum this week. Unfortunately, the structural-oriented party convention is unlikely to unveil counter-cyclical measures. The outlook for H2 is unfavourable to China’s export-driven growth as trade protectionism grows.
“Among all monthly figures released today, the highlight is weak retail sales. The 2% y/y is way below market consensus forecast of 3.4%. The figure does match our visual inspection on the street. Household consumption remains very weak. The ‘replacement’ schemes fail to lift spending. With employers slashing salary and high youth unemployment, households will still be cautious going forward.”
SHANE OLIVER, CHIEF ECONOMIST AT AMP (OTC:), SYDNEY
“The GDP numbers are consistent with what we’ve been seeing from the partial economic indicators, indicating a further slowing in Chinese growth. The bulk of the main problem is consumer spending … So, this is suggesting downside risks to Chinese GDP growth this year and probably also highlights the ongoing need for more stimulus push.
“What China needs is more efforts to boost consumer spending and stop consumers saving so much. And hopefully that’s what we might see (from the third plenum). You could argue today’s economic data coming in on the soft side increases the pressure on the third plenum to announce more decisive stimulus measures. But you know we have been disappointed in the past, so investors don’t want to get their hopes up too much.”
MATT SIMPSON, SENIOR MARKET ANALYST, CITY INDEX, BRISBANE
“The numbers may not have been great relative to expectations, but perhaps expectations were just too high. YTD, growth rose 5%, which hits Beijing’s growth target of ‘around 5%’. And if there is to be any stimulus announced, the CCP’s Third Plenum would be the time to wheel them out. Although expectations to unveil reforms adequate to provide growth of the good ‘ole days is low.”
ALVIN TAN, HEAD OF ASIA FX STRATEGY, RBC CAPITAL MARKETS, SINGAPORE
“On net, it’s a negative outcome. It does show that the second-quarter growth momentum appears to be weakening.
“The second-quarter momentum weakening kind of implies that we’ll need more support to get the economy to the 5% target for the whole year. And in particular, we can see that the housing market continues to sag … effectively, the housing market and consumption side remains weak.”
LYNN SONG, CHIEF ECONOMIST FOR GREATER CHINA, ING, HONG KONG
“The two big drags on GDP growth continue to be the property sector and consumption. Property investment slumped -10.1% YoY through 1H24, and today’s data showed the price decline continues. A silver lining was that more cities saw price increases, and we saw some stabilisation in some key tier 1 and 2 cities. On consumption, the 2% YoY growth in retail sales was the weakest level since exiting pandemic restrictions, and showed weak consumer confidence remaining a major headwind to the economic recovery.
“A negative wealth effect from falling property and stock prices, as well as low wage growth amid various industries’ cost-cutting is dragging consumption and causing a pivot from big ticket purchases toward basic ‘eat, drink and play’ theme consumption.
“Overall, the disappointing GDP data shows that the road to hitting the 5% growth target remains challenging, and we will need to see further policy support in the coming months if this goal is to be reached.”
BACKGROUND
* China’s economy has struggled to mount a strong and sustainable post-COVID bounce, burdened by a protracted property downturn, mounting local government debts and weak private-sector spending.
* The world’s second-biggest economy is expected to grow at a 5% pace in 2024 year-on-year, according to a Reuters poll. Analysts then tip slower growth of 4.5% for 2025.
* The government is aiming for an economic growth of around 5% this year, a target many analysts believe is ambitious and may require more stimulus, noting that last year’s growth rate of 5.2% was likely flattered by a comparison with a COVID-hit 2022.
* China is drawing on infrastructure work – a well-used playbook – to help lift the economy as consumers are wary of spending and businesses lack confidence to expand.
* Fitch cut its outlook on China’s sovereign credit rating to “negative” in April, citing risks to public finances as Beijing channels more spending towards infrastructure and high-tech manufacturing, amid a shift away from the property sector.