China’s GDP Grew 6.3% in Second Quarter, Missing Market Expectations

18 Jul 2023

China’s GDP grew 6.3% year-on-year in the second quarter, official data showed Monday, partly due to a low base from the same period last year, when Covid curbs slowed growth to 0.4%.

The latest figure comes in lower than the average estimate of 7% growth in a recent Caixin survey of economists.

Although the year-on-year growth beat the 4.5% rise recorded in the first three months of 2023, GDP in the April-to-June period only grew 0.8% from the previous quarter, according to the National Bureau of Statistics (NBS).

“China’s recovery is going from bad to worse,” wrote Harry Murphy Cruise, an economist at Moody’s Analytics, in a note on Monday. “After a sugar injection in the opening months of 2023, the pandemic hangover is plaguing China’s recovery,” he said.

Some analysts are expecting more easing measures, both fiscal and monetary, in the coming months to shore up consumption and important industries such as real estate. But the size of stimulus may be smaller than previous easing cycles, and the effect may be limited, they said.

Eyes are on the meeting of the Politburo, the Communist Party’s top decision-making body, later this month, to see whether more support will be announced.

Various economic indicators show the waning momentum in the country’s post-pandemic recovery.

Total retail sales, which include spending by governments, businesses and households, grew 3.1% year-on-year in June, down from 12.7% the previous month, as the effect of the low base created by the lockdowns in Shanghai and other regions last year tailed off. A 16.1% year-on-year uptick in dining sales was a major driver of the growth in June.

On a month-to-month basis, retail sales only grew 0.23% in June.

Value-added industrial production climbed 4.4% year-on-year in June, but barely increased from May, up just 0.68%. Industrial output of major state-owned enterprises grew 5.4% year-on-year in June, while major private businesses recorded a lower growth rate of 3.2%, NBS data show.

The central bank stepped up its monetary easing last month, cutting some key policy rates in a bid to stimulate households and the private sector’s borrowing and investment amid weak confidence and dim income prospects.

Larry Hu and Yuxiao Zhang, Macquarie International Services Ltd. economists, predict the rate-cutting cycle will continue, with another 10-basis-point policy rate reduction “in the next month or two.” They also expect a lowering of the reserve requirement ratio — which determines the amount of cash banks need to keep in reserve — soon to encourage lending to the real economy.

The latest NBS data of real estate investment indicate that the industry was still struggling to get back on its feet, despite policy supports that encourage financing by homebuyers and select property developers.

In the first half of the year, investment in property development dropped 7.9% year-on-year, widening from a 7.2% decline in the first five months. Meanwhile, fixed-asset investment, which includes property development investment, grew 3.8% in the first half, driven by a 6% rise in manufacturing investment and a 7.2% jump in government-led infrastructure investment.

The economic recovery is expected to fade further in the second half, economists led by Lu Ting, chief China economist at Nomura Holdings Inc., wrote on Monday.

China is likely to introduce supportive measures such as rate cuts and fiscal support for local governments, but these “may not turn things around,” the economists said, pointing to factors including weak confidence, shrinking local fiscal revenues, and fewer available policy tools.

Meanwhile, policymakers are struggling with soaring youth unemployment, with the surveyed urban jobless rate for people aged 16 to 24 hitting 21.3% in June, breaking the record 20.8% set last month.

The youth unemployment rate may climb further this month, as fresh college graduates enter the workforce, but will likely decline afterwards, NBS spokesman Fu Linghui said at a Monday press conference.