China’s economy grew slower than expected in the second quarter, with worrying signs of a slowdown in consumer spending and ongoing pain in the property market prompting calls for Beijing to do more to support the recovery.
Gross domestic product expanded 6.3% in the second quarter from a year prior, data released by the National Bureau of Statistics showed Monday, weaker than the median forecast of 7.1% by economists surveyed by Bloomberg.
Monthly indicators for June showed a mixed picture, with a notable slide in retail sales growth and a weakening in the property market, while industrial production improved.
“This is a consumption-induced slowdown, which calls for policy support on the demand side,” said Hao Zhou, chief economist at Guotai Junan Hong Kong Ltd. “We believe further rate cuts are more or less warranted.”
Beijing has set a moderate GDP growth target of around 5% for this year, but is contending with a barrage of economic challenges including the looming prospect of deflation, falling exports and a property sector in crisis. The People’s Bank of China, which cut its key policy rate in June, refrained from easing policy on Monday, although many analysts expect a move in coming months.
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China’s benchmark CSI 300 Index of stocks fell 1.1% as of the mid-day break as Asian peers broadly dropped. It was the index’s first decline in three sessions. The onshore yuan weakened 0.35% at 7.1665 per dollar as of 11:33 a.m. local time.
The NBS said in a statement that while the economy rebounded, the “global political and economic situations are complicated, and the domestic economy’s recovery and development foundation is still not solid yet.”
What Bloomberg Economics Says…
A pickup in industrial production points to some stabilization in the manufacturing sector, a sign that the economy’s growth engine is shifting from consumption to production. But flagging domestic and external demand are obstacles to sustaining the recovery. The weak data strengthen the case for more policy support.
Chang Shu and David Qu
The data pointed to several weak spots in the economy, including surging youth unemployment and deflation. The NBS said the unemployment rate for 16- to 24-year-olds, which hit a new high of 21.3% in June, could climb even further in coming months.
Zhiwei Zhang, president and chief economist of Pinpoint Asset Management, pointed out that nominal GDP growth was lower than inflation-adjusted growth in the second quarter, suggesting the “risk of deflation is serious.” The GDP deflator, a measure of inflation in the economy, turned negative for the first time since 2009, according to calculations from Bloomberg Economics.
Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group Ltd., said the data miss may prompt officials to accelerate fiscal spending to boost investment. Investors expect more policy guidance from the Communist Party’s Politburo meeting later in July, although Xing said there could be fiscal measures announced before then.
“There has been a lot of signals including conferences between the government and foreign investors and entrepreneurs, which suggest that follow up policy will come,” he said. “Fiscal spending will be the major focus in the next two weeks.”
Even so, Beijing is likely to take targeted steps, instead of implementing broad-based measures to boost growth.
“Overly stimulating demand in the short-term may prove counter-productive by stoking the build-up in debt and accentuating some of the economy’s imbalances, such as its reliance on a vast housing construction sector,” said Frederic Neumann, chief Asia economist at HSBC Holdings. The focus remains on “putting the economy on a long-term sustainable trajectory.”
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