Beijing (Reuters) – China’s economic growth slowed down a lot in the second quarter. This shows how much the widespread COVID lockdowns hurt the economy, and it also shows that there will be a lot of pressure in the coming months from a worsening global outlook.
Friday’s weak data adds to worries about a global recession as policymakers raise interest rates to stop inflation from skyrocketing. This makes things even harder for consumers and businesses around the world, who are already dealing with problems like the Ukraine war and supply chain disruptions.
Official data released on Friday showed that the gross domestic product grew only 0.4% from the same time last year to the April-June quarter. That was the worst performance for the world’s second-largest economy since records began in 1992, excluding a 6.9% drop in the first quarter of 2020 due to the initial COVID shock.
Reuters polled analysts had predicted a gain of 1%, but the real number was only 0.9%. This was a big drop from the growth of 4.8% in the first quarter.
On a quarter-to-quarter basis, GDP fell 2.6% from the previous quarter to the second quarter. This was worse than the expected drop of 1.5% and the revised gain of 1.4% in the previous quarter.
“China’s economy has been close to slipping into stagflation, but the worst of it is over as of May and June. You can rule out the chance of a recession or two consecutive quarters of shrinkage, “The head economist at the Dai-ichi Life Research Institute in Tokyo, Toru Nishihama, said this.
“Given China’s slow growth, the government is likely to start using economic stimulus measures to get the economy going again. However, it will be hard for the People’s Bank of China (PBOC) to cut interest rates further because that would cause inflation to rise, which has been kept low so far.”
In March and April, full or partial lockdowns were put in place in major cities across the country. This included the commercial capital, Shanghai, where GDP fell by 13.7% from the same time last year. In the same quarter, Beijing’s output was down 2.9% from the same time last year.
Even though many of these restrictions have been lifted and June data showed signs of improvement, analysts don’t think the economy will get better quickly. China is sticking to its strict zero-COVID policy even though there are new problems, the country’s real estate market is in a deep slump, and the outlook for the world is getting worse.
Businesses and consumers are worried about a long time of uncertainty because of the new lockdowns in some cities and the arrival of the highly contagious BA.5 variant.
GDP grew by 2.5% from the first half of the year to the second.
The weak GDP report caused the yuan to fall to its lowest level in two months, and Chinese stocks went up for a short time before going down.
THE ONE-YEAR GOAL IS OUT OF REACH.
China has been giving the economy more help through its policies, but analysts say that the official growth goal of around 5.5 percent for this year will be hard to reach unless China gives up its strict zero-COVID strategy. A Reuters poll said that growth would slow to 4% in 2022.
Many people think that the central bank might not be able to ease policy any more because of worries about capital outflows. This is because the U.S. Federal Reserve and other economies are raising interest rates aggressively to fight rising inflation.
Analysts say that China’s rising consumer prices, which aren’t as high as those in other major economies, may also make it harder to loosen monetary policy.
Analysts at Nomura said, “We think the markets have become too optimistic about growth in the second half of the year.”
China’s industrial output grew by 3.9% in June compared to the same month last year. This was a faster rate of growth than the 0.7% increase seen in May.
Beijing is counting on fixed asset investment to boost growth, and it grew by 6.1 percent in the first half of the year, which was better than the 6.2 percent increase in the first five months.
After authorities in Shanghai lifted a two-month lockdown, retail sales also went up by 3.1% year over year in June. This was the fastest growth in 4 months. Analysts had expected growth to stay the same after May’s drop of 6.7%.
“The biggest thing holding back consumption has been lockdowns,” said Jacob Cooke, CEO of WPIC Marketing + Technologies in Beijing.
“Consumers are still worried about lockdowns, but there are signs that future lockdowns won’t be as strict. This gives us hope that consumption will continue to rise in the second half of the year.“
Property fears
But both consumers and businesses face a lot of problems.
The job market was still in bad shape. The national survey-based unemployment rate went down to 5.5% in June, from 5.9% in May. This is right on target with what the government wants to see. But in June, 19.3% of young people were out of work, which was a record high.
China’s property market is struggling to recover because it doesn’t have enough capital. This is made worse by the fact that more and more homebuyers across the country are stopping mortgage payments until developers start building pre-sold homes again.
The monthly growth of home prices stopped in June, according to data released on Friday. Simultaneously, property investment fell for the fourth month in a row, while sales fell by 18.3 percent.
Politicians have promised to help local governments finish building projects on time, and they plan to spend more on infrastructure to get the economy going again. Still, the things that stand in the way of growth point to a hard road ahead.
“Even if the numbers are manipulated, it’s hard to see how the government’s goal of “around 5.5 percent‘ growth can be reached this year,” said Julian Evans-Pritchard, a senior China economist at Capital Economics.
“That would require a huge speedup in the second half of this year, which is unlikely.”
