China growth weakens more than expected to 4.7% in Q2 as outlook darkens

BEIJING - China’s economy grew much slower than expected in the second quarter, as a protracted property downturn and job insecurity squeezed domestic demand, keeping alive expectations Beijing will need to unleash even more stimulus.

The world’s second-largest economy grew 4.7 per cent in April-June, official data showed on July 15, its slowest pace since the first quarter of 2023 and missing a 5.1 per cent analysts’ forecast in a Reuters poll. It was also down from the 5.3 per cent expansion in the previous quarter.

“Overall, the disappointing GDP data shows that the road to hitting the 5 per cent growth target (for 2024) remains challenging,” said ING chief economist for Greater China Lynn Song.

“A negative wealth effect from falling property and stock prices, as well as low wage growth amid various industries’ cost cutting is dragging consumption and causing a pivot from big ticket purchases towards basic ‘eat, drink and play’ theme consumption,” he added.

China’s renminbi and stocks fell following the disappointing data.

The figures come as Beijing seeks to shore up economic confidence at a

highly anticipated third plenum

, a key leadership meeting that starts on July 15, although conflicting requirements such as boosting growth and cutting debt complicate those plans.

The government is aiming for economic growth of around 5 per cent for 2024, a target that many analysts believe is ambitious and may require more stimulus.

On a quarterly basis, growth came in at 0.7 per cent from a downwardly revised 1.5 per cent in the previous three months.

To counter soft domestic demand and a property crisis, China has boosted infrastructure investment and ploughed funds into high-tech manufacturing.

Consumer pains

China’s National Bureau of Statistics said that while bad weather accounted for some of the hit to growth in the second quarter, the economy faced increasing external uncertainties and domestic difficulties in the second half of 2024.

Economic growth in China has been uneven, with industrial output outstripping domestic consumption, fanning deflationary risks amid the property downturn and mounting local government debt.

While solid Chinese exports have provided some support, rising trade tensions now pose a threat.

Broadly reflecting those trends, separate data on July 15 showed factory output growth beating expectations in June but still slowing from May, while retail sales growth also missed forecasts.

That follows data released earlier in July that showed China’s exports up 8.6 per cent in June from a year earlier, and imports unexpectedly shrinking 2.3 per cent, suggesting manufacturers are front-loading orders to get ahead of tariffs from trade partners.

Consumer prices, meanwhile, also missed expectations and factory deflation persisted.

“Among all the monthly figures released today, the highlight is the weak retail sales,” said ANZ senior China strategist Xing Zhaopeng.

Retail sales grew 2 per cent year on year in June, missing the 3.3 per cent growth forecast in the poll.

“Household consumption remains very week… with employers slashing salaries and high youth unemployment, households will still be cautious going forward,” Mr Xing added.

There was even more pain in China’s battered property sector with

new home prices falling at the fastest pace in nine years

in June and struggling to find a bottom despite government support measures.

Property investment fell 10.1 per cent in the first half of 2024 from a year earlier, and home sales by floor area fell 19 per cent, deeper than a 20.3 per cent slump in the first five months of 2024.

China’s central bank governor Pan Gongsheng in June pledged to stick to a supportive monetary policy stance.

Analysts polled by Reuters expect a 10-basis points cut in China’s one-year loan prime rate as well as a 25-basis points cut in banks’ reserve requirement ratio in the third quarter.

Citi analysts expect the government to unleash another round of property supporting measures after a meeting of the Politburo, a top decision-making of the ruling Communist Party expected in late July. REUTERS