China’s economy expanded by 4.7 percent in the second quarter of the year compared to the same period last year, according to official data released on Monday.
This growth rate fell short of economists’ expectations of 5.1 percent and represented a slight slowdown from the 5.3 percent growth recorded in the previous quarter.
Despite policymakers' efforts to stimulate domestic demand amidst a prolonged downturn in the property market, GDP only grew by 0.7 percent from April to June. This was below the anticipated 1.1 percent increase and lower than the revised 1.5 percent growth seen in the first quarter.
“Weaker-than-expect official GDP figures show that China’s economy lost momentum in Q2. But we doubt this marks the beginning of a renewed downturn just yet – a step up in fiscal stimulus and continued export strength should provide a near-term boost to growth over the coming months,” said Zichun Huang, China Economist at Capital Economics.
The release of these figures coincides with China’s attempt to boost economic confidence at the start of a significant leadership meeting, the third plenum.
However, achieving a balance between stimulating growth and managing debt remains challenging. China has set an ambitious growth target of around 5 percent for the year, but achieving this goal is seen as increasingly difficult by some economists.
Fitch Ratings downgraded China’s long-term outlook to negative while maintaining its A+ credit rating. This decision was based on concerns about China’s shift away from growth driven by the property sector, which introduces greater uncertainty into the economic outlook.
China faces multiple economic challenges, including deflationary pressures, subdued consumer sentiment, and financial stress within the real estate sector. Despite government efforts to stabilize the property market, significant issues persist.
In June, new home prices fell by 4.5 percent compared to a year earlier, marking the steepest decline since June 2015 and exceeding the 3.9 percent drop recorded in May. Monthly, home prices decreased by 0.7 percent in June following a similar decline in May.
Property investment in China declined by 10.1 percent in the first half of 2024 compared to the same period last year, consistent with figures reported from January to May.
This suggests ongoing challenges despite government support measures.
Additionally, property sales by floor area dropped by 19.0 percent year-on-year in the first half of the year, a sharper decline than the 20.3 percent decrease observed from January to May, according to data from the National Bureau of Statistics released on Monday.
“Looking ahead, we expect economic growth to regain some momentum in the coming months. Property support measures do seem to be helping to stabilise the housing market somewhat – new home sales were broadly flat last month,” Huang added.
“And while consumer spending is likely to stay subdued, continued price cuts among Chinese manufacturers mean that exports should remain robust for now despite increased tariffs from the US and EU. Together with a likely ramp up in fiscal spending over the coming months, this should lead to a near-term reacceleration in growth, albeit one that is unlikely to be sustained over the medium-term.”
By CityAM
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