China’s economy grew much more slowly than expected in the second quarter. A prolonged downturn in the real estate market and job insecurity slowed the fragile recovery. Nevertheless, expectations remain that Beijing will have to provide even more stimulus.
The world’s second-largest economy grew 4.7 percent in the April-June period, official data showed. This is the slowest growth since the first quarter of 2023 and missed analysts’ forecasts of 5.1 percent in a Reuters poll. Growth also slowed compared to the previous quarter, when growth was 5.3 percent.
Of particular concern was the consumer sector, where retail sales growth fell to an 18-month low as deflationary pressures forced companies to drastically cut prices on everything from cars to food to clothing.
“Overall, the disappointing GDP data shows that the path to achieving the five percent growth target remains difficult,” said Lynn Song, chief economist for Greater China at ING.
“A negative wealth effect due to falling real estate and stock prices as well as low wage growth against the backdrop of cost cutting in various sectors are slowing consumption and leading to a shift away from expensive purchases towards consumption behaviour focused on eating, drinking and playing.”
China’s long-running real estate crisis deepened in June when new home prices fell at the fastest pace in nine years, shaking consumer confidence and limiting the ability of heavily indebted local governments to raise fresh cash through land sales.
Analysts expect debt reduction and confidence-building to be the focus of a key meeting of economic leaders in Beijing this week, but solving one of those problems could make it harder to solve another.
The government is targeting economic growth of around five percent for 2024. Many analysts consider this target ambitious and believe it may require further incentives.
“The rest of 2024 will depend on how successful policymakers are in halting the housing market downturn and boosting domestic spending,” said Harry Murphy Cruise, economist at Moody’s Analytics.
On a quarterly basis, growth was 0.7 percent, up from 1.5 percent (downwardly revised in the previous three months), according to data from the National Bureau of Statistics (NBS).
To counter weak domestic demand and a real estate crisis, China has increased its investment in infrastructure and pumped money into high-tech production.
Economic growth in China was uneven, with industrial production outpacing domestic consumption, fuelling deflationary risks amid a real estate crisis and rising local government debt.
While solid Chinese exports provided some support, rising trade tensions now pose a threat.
These trends are broadly reflected in separate data on Monday, which showed that factory production growth beat expectations in June but slowed from May.
The bigger problem on Monday, however, was retail sales, which rose 2.0 percent from the same period last year, below forecasts and the lowest growth since December 2022.
“Among all the monthly figures released today, the weak retail sales stand out,” said Xing Zhaopeng, senior China strategist at ANZ.
“Private consumption remains very weak… Given the wage cuts by employers and high youth unemployment, households will remain cautious in the future.”
Real estate investment fell 10.1 percent year-on-year in the first half of 2024, and home sales by square footage fell 19.0 percent.
Analysts at Citi expect the government to launch another round of property-supporting measures after a meeting of the Politburo, a key decision-making body of the ruling Communist Party, scheduled for late July.