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China’s economy lost momentum in the second quarter, with gross domestic product expanding 0.8 percent from the previous three months as declining exports, weak retail sales and a weak property sector weighed on growth.
The headwinds facing the world’s second-largest economy will put further pressure on global growth and increase calls for more stimulus measures more than six months after Beijing abandoned strict Covid-19 controls.
Second-quarter growth was stronger than the 0.5 percent forecast in a Reuters poll of analysts but weaker than the 2.2 percent quarter-on-quarter expansion in the January-March period.
Annually, the economy grew 6.3 percent in the second quarter due to a lower-base effect than last year, when major cities including Shanghai were locked down for extended periods. A Reuters poll had forecast 7.3 percent growth.
The National Bureau of Statistics said on Monday that, broadly speaking, economic growth had “fully normalized” in the first half of the year.
“However, we must be aware that the international political and economic conditions are very complicated, and the foundation for a sustained recovery at home is not yet strong,” said NBS spokesman Fu Linggui.
China’s economy was initially stronger due to the Covid lockdown last year but has started to lose steam in recent months on weak household and business confidence.
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A slowdown in trade has complicated the situation as high interest rates in the West weigh on consumer purchases of Chinese-made goods.
NBS said exports fell 8.3 percent in June from a year ago. Retail sales rose 3.1 percent in June from a year earlier, down from a 12.7 percent increase in May.
Unemployment for 16- to 24-year-olds hit a new high of 21.3 percent in the second quarter, while overall urban unemployment was steady at 5.2 percent in June.
Carlos Casanova, senior Asia economist at Union Banker Privy, said retail sales and consumption should be the engine of growth for China this year, so the June growth figure was disappointing.
He added that the government will need to focus on improving private sector sentiment, especially if it wants to reduce youth unemployment.
“The most disappointing number of all . . . was the youth employment figure . . . it doesn’t bode well for sentiment, for stability, for general prosperity,” Casanova said. “They have to focus on ways to reduce those unemployment numbers.”
Investment in real estate fell 7.9 percent in the first half of the year compared to the same period a year earlier, the NBS said, as commercial property sales by floor space fell 5.3 percent.
Private investment fell 0.2 percent in the first half while capital spending declined across the board.
Infrastructure investment, used by the government to stimulate the economy, rose 7.2 percent in the first half of the year from a year ago.
“China’s recovery is going from bad to worse,” Moody’s Analytics economist Harry Murphy Cruz said in a research note. “Pandemic hangover hampers China’s recovery.”
He said consumers were wary of spending and were instead saving. Businesses were reluctant to invest, while a new recovery in the property market earlier this year was “fizzling” and foreign households were spending more on services rather than goods such as electronics, hurting China’s exports.
Cruz added that the central bank has already cut lending rates and Beijing has extended tax breaks for the sale of electric vehicles. 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 the year to forget for China.”
On the positive side, catering sales rose 21.4 percent in the first half as customers returned to restaurants. Industrial production in the renewables sector also increased, with electric vehicle sales up 35 percent year-on-year in the first half.
Economists said attention will now turn to a meeting of China’s ruling Politburo this month, which is expected to consider further possible support measures for the economy.
Stocks sold off in China following the data release, with the CSI 300 index of Shanghai- and Shenzhen-listed shares up 1.1 percent after morning declines, while the renminbi fell 0.3 percent against the dollar.
