China's economy expands 6.3% in second quarter but misses estimates

Retail sales grew 3.1 per cent in June, slowing from a 12.7 per cent in May

The Bund promenade in Shanghai. China's economy grew at a slower-than-expected pace in the second quarter. AFP
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China's economy accelerated at a fast pace in the second quarter of this year as it continued to recover from the coronavirus-induced slowdown but the pace of growth was slower than expected.

Gross domestic product in the world's second-largest economy expanded by an annual 6.3 per cent from April to June, after growing 4.5 per cent in the previous three months as the country removed Covid-19 restrictions and reopened, according to the latest data released on Monday by the National Bureau of Statistics.

However, the pace of growth in the second quarter missed the 7.1 per cent estimate of economists polled by Bloomberg and the 7.3 per cent forecast of those surveyed by Reuters.

Quarterly GDP growth was only 0.8 per cent between April and June, compared with the previous three months.

China's retail sales grew 3.1 per cent in June, slowing from 12.7 per cent in May, the data showed, while the urban surveyed unemployment rate in 31 major cities stood at 5.5 per cent, the same as that of the previous month.

The unemployment rate for the 16 to 24 age group was 21.3 per cent while that for the 25 to 59 age group was 4.1 per cent, government data showed.

Industrial output growth accelerated at an annual 4.4 per cent in June, from 3.5 per cent in May.

The Manufacturing Purchasing Managers’ Index for June stood at 49 per cent while the Production and Operation Expectation Index was at 53.4 per cent.

A reading over 50 indicates an expansion in business conditions, while one below represents a contraction.

"Recent economic data out of China have pointed to declines in exports, weak retail sales and continued troubles in the Chinese property market, which are all factors likely to have weighed on activity in the second quarter," Emirates NBD economists said in a research note.

The People’s Bank of China (PBOC), left its benchmark interest rate unchanged on Monday at 2.65 per cent. It had cut the key policy rate in June.

"To negate weak internal demand and eroding consumer confidence, expansionary fiscal stimulus measures are likely to be more effective than more interest rate cuts, and accommodating monetary policy in a deflationary environment reduces the 'marginal benefit' from an extra added effort of monetary policy stimulus; a 'liquidity trap scenario'," said Kelvin Wong, a senior market analyst at Oanda.

China’s benchmark CSI 300 stock market index fell 1.09 per cent as of 7.46am UAE time, its first decline since July 12. The onshore yuan weakened by 0.31 per cent to 7.1776 per dollar.

"The Chinese property downturn, risk of disinflation, and falling exports have been difficult to reverse. As a result, the knee-jerk reaction in markets was unenthusiastic," said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.

China's recovery has been weaker than expected due to sluggish domestic and international consumer demand in line with International Monetary Fund's expectations of a “rocky” recovery for the global economy as geopolitics, monetary tightening and inflation, although declining, continue to weigh on growth.

World trade growth is expected to decline this year to 2.4 per cent, despite an easing of supply bottlenecks, before rising to 3.5 per cent in 2024, after growing by 5.1 per cent in 2022, according to the fund.

The IMF estimates China's economy will grow by 5.2 per cent in 2023, following a 3 per cent expansion in 2022, as it benefits from a full reopening this year.

Some analysts expect the PBOC to provide more stimulus and the government to boost spending to spur growth.

Earlier in the year, Goldman Sachs had said the reopening of China’s economy and a full recovery in the country's domestic demand could raise global output by about 1 per cent in 2023 and lead to a rally in oil prices.

India and China will account for half of global growth this year, compared with only a tenth for the US and euro area combined, according to the IMF.

Updated: July 17, 2023, 6:32 AM