China’s economic growth slows to 4.7 per cent in second quarter

BEIJING – China posted weaker-than-expected growth for the second quarter of 2024, as soft domestic demand and a continued property slump weighed on the world’s second-largest economy.

Its gross domestic product (GDP) grew 4.7 per cent year on year – the lowest quarterly growth figure since the start of 2023 – falling short of the 5.1 per cent forecast by economists in a Reuters poll. Overall growth for the first half of the year stood at 5 per cent, in line with the country’s GDP target for 2024.

The data, released by the National Bureau of Statistics on July 15, comes as the Communist Party leadership convenes in Beijing this week for a reform-focused, twice-in-a-decade conclave that will be closely watched for how China intends to address key challenges, including on the economic front.

“Growth in the second quarter was slow, mostly due to disappointing housing and consumption data,” said Dr Dan Wang, chief economist at Hang Seng Bank in Shanghai.

Retail sales, a measure of consumer demand, grew in June at its slowest pace since China’s post-pandemic reopening. The 2 per cent year-on-year growth rate recorded fell short of economists’ expectations, and was down from the 3.7 per cent logged in May.

One factor contributing to weak consumption is the public’s lack of confidence in their future earnings, especially amid reports of pay cuts across industries, said Mr Tommy Xie, head of Greater China research at OCBC Bank in Singapore. This is despite an urban unemployment rate that has remained largely stable, at 5 per cent in June.

Another is persistently low inflation in the economy, which makes people more likely to delay spending since prices are not expected to grow significantly, he added. China’s consumer price index grew just 0.2 per cent year on year in June.

Real estate – a major economic driver and source of household wealth – continued to record declines on the whole. Prices of new homes fell in June at their fastest pace since 2015, or 4.5 per cent year on year, by Reuters’ calculations. Property investments in the first half of 2024 fell 10.1 per cent year on year.

But the data also held “a few silver linings”, which suggest that support measures for the property sector are starting to take effect, wrote Mr Lynn Song, chief economist for Greater China at ING Bank, in a note.

For instance, more cities recorded month-on-month increases in home prices in June than in May, according to a 70-city sample tracked by the statistics bureau. They include Shanghai, which saw small gains in the primary and secondary markets, as well as Beijing, Hangzhou and Nanjing, which saw price increases in the secondary market.

China on May 17 rolled out its most significant measures yet to shore up its struggling real estate sector.

Analysts whom The Straits Times spoke to noted that amid tepid domestic demand, exports had buttressed – and will continue to buttress – GDP growth in the interim.

China’s exports rose 8.6 per cent in June from a year earlier – their fastest pace in 15 months – according to trade data released last week.

Hang Seng Bank’s Dr Wang assessed that China’s exports will continue to benefit from interest rate cuts in major Western economies, which are expected to drive up domestic infrastructure-building and thereby demand for low-cost industrial goods, many of which are produced in China.

“So we think China will meet its 5 per cent GDP target even if consumption (remains) weak,” she said.

OCBC’s Mr Xie agrees that despite the slower growth momentum in the second quarter, it will still be possible for China to meet its GDP target.

“But certainly it will become more challenging as compared with the first half (of the year), because for the second half the base is slightly higher,” he noted, referring to how China’s economic performance in the second half of 2023 had outperformed the first half.

He will be looking to a meeting later in July of the Politburo, the party’s top decision-making body, for signs of how the leadership intends to support economic growth in the near term.