China’s economic growth more than halves in second quarter

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FILE PHOTO: People visit a newly opened shopping mall in Beijing, China April 16, 2021. REUTERS/Tingshu Wang

July 15, 2021

(Reuters) – China’s economic growth more than halved in the second quarter from a record expansion in the first three months of the year, as slowing manufacturing activity, higher raw material costs, and new COVID-19 cases weighed on the recovery momentum.

Gross domestic product (GDP) expanded 7.9% in the April-June quarter from a year earlier, official data showed on Thursday, missing expectations for a rise of 8.1% in a Reuters poll of economists.

Growth slowed significantly from a record 18.3% expansion in the January-March period, when the year-on-year growth rate was heavily skewed by the COVID-induced slump in the first quarter of 2020.

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KEY POINTS

* Q2 GDP +7.9% y/y (f’cast +8.1%, Q1 +18.3%)

* Q2 GDP 1.3% q/q s/adj (f’cast +1.2%, Q1 +0.4% revised)

* June industrial output +8.3% y/y (f’cast +7.8%, May +8.8%)

* June retail sales +12.1% y/y (f’cast +11.0%, May +12.4%)

* H1 fixed asset investment +12.6% y/y (f’cast +12.1%, Jan-May +15.4%)

COMMENTARY:

WOEI CHEN HO, ECONOMIST, UOB, SINGAPORE

“The numbers were marginally below our expectations and the market’s expectations, (but) I think the momentum is fairly strong.

“For the monthly economic data for June, we see a slowdown in retail sales, industrial production and also fixed investment from May, but in terms of market expectations, all these numbers are better than expected. In particular, the retail sales growth was quite strong – that is quite encouraging.

“On comparison with last year, though, we will get slower growth. We expect second-half growth to be slowing to maybe around 6%.

“Our greater concern is the uneven recovery that we’ve seen so far and for China the recovery in domestic consumption is very important … retail sales this month was fairly strong and that may allay some concerns.”

BACKGROUND:

* China’s economy has been recovering since the second quarter of last year, buoyed by solid overseas demand for its exports, but growth is losing steam as manufacturing activity slows on higher raw material costs and supply shortages.

* The central bank said it would cut the amount of cash banks must hold as reserves, even as policymakers have been scaling back pandemic-driven stimulus to contain debt and financial risks.

* China’s economy has surprised many with the speed of its recovery from last year’s coronavirus jolt, especially as policymakers have also had to navigate tense U.S.-China relations on trade and other fronts — GDP shrank 6.8% in Q1, 2020 for its first contraction since at least 1992 when official quarterly records started.

* Since then it managed a remarkable rebound and at a quickening pace, partly due to stringent lockdown measures to contain the novel coronavirus, which first emerged in China in late 2019.

* The recovery has been led by export strength as factories raced to fill overseas orders and consumption steadily picked up despite sporadic COVID-19 cases in some cities.

* China’s government has rolled out a raft of support measures, including more fiscal spending, tax relief, and cuts in lending rates and banks’ reserve requirements to revive the economy and support employment.

* With the economy back on more solid footing, the People’s Bank of China is turning its focus to cooling credit growth to help contain debt and financial risks, but it is treading cautiously to avoid derailing the recovery.

* Authorities are especially concerned about financial risks involving the country’s overheated property market, and have asked banks to trim their loan books this year to guard against asset bubble.

(Reporting by Asian bureaus; Editing by Sherry Jacob-Phillips)





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