China’s economic recovery loses some steam, investors eye more policy easing
A quality control staff checks on an ice-skating shoe at a manufacturing factory in the ice and snow sports equipment industry park in Zhangjiakou in … A quality control staff checks on an ice-skating shoe at a manufacturing factory in the ice and snow sports equipment industry park in Zhangjiakou in northwestern China’s Hebei province on Thursday, July 15, 2021. (AP photo)
BEIJING (Reuters) -China’s economy grew slightly more slowly than expected in the second quarter, weighed down by higher raw material costs and new COVID-19 outbreaks, as expectations build that policymakers may have to do more to support the recovery.
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.
Retail sales and industrial output grew more slowly in June, the latter dragged by a sharp fall in motor vehicle production, while NBS data also showed a cooling in China’s housing market, a key engine of growth.
But June activity data still beat expectations, providing some relief to investors concerned about a slowdown after the central bank announced policy easing last week.
“The numbers were marginally below our expectation and the market’s expectation (but) I think the momentum is fairly strong,” said UOB economist Woei Chen Ho in Singapore.
“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.”
While the world’s second-largest economy has rebounded strongly from the COVID-19 crisis, buoyed by solid export demand and policy support, data releases in recent months have suggested some loss in momentum.
Higher raw material costs, supply shortages and pollution controls are weighing on industrial activity, while small COVID-19 outbreaks have kept a lid on consumer spending.
Investors are watching to see if the central bank is shifting to an easier policy stance after the People’s Bank of China (PBOC) announced last week it would cut the amount of cash that banks must hold as reserves, just as some other central banks begin or start thinking about exiting pandemic-era stimulus.
Average second quarter growth in 2020 and 2021 was 5.5%, up slightly from a 5% average for the first quarter, according to the National Bureau of Statistics.
On a quarterly basis, GDP expanded 1.3% in the April-June period, the NBS said, just beating expectations for a 1.2% rise in the Reuters poll. The NBS revised down growth in the first quarter from the fourth quarter last year to 0.4%.
POLICY EASING?
The PBOC move, which released about 1 trillion yuan ($154.64 billion) in long-term liquidity to bolster the recovery, comes even as policymakers have sought to normalise policy after the economy’s strong rebound from the coronavirus crisis to contain financial risks.
It highlights the challenges policymakers will face in rolling back pandemic-era stimulus as the coronavirus continues to flare-up around the world.
“The domestic economic recovery is uneven,” said Liu Aihua, an official at the NBS at a briefing on Thursday.
“We must also see that the global epidemic continues to evolve, and there are many external instabilities and uncertain factors,” she said.
Premier Li Keqiang reiterated on Monday that China would not resort to flood-like stimulus.
Still, economists in the Reuters poll expected more support this year, forecasting a further cut in the bank reserve requirement ratio (RRR) in the fourth quarter.
Some market watchers say a cut in the country’s benchmark loan prime rate may be next, possibly as early as next week.
“Based on the current situation, if policymakers do not act, the GDP figure in Q4 could fall out of the reasonable range as data from last Q4 was shining,” said Xing Zhaopeng, senior China strategist at ANZ in Shanghai.
“I expect the government to roll out targeted easing measures.”
HEADWINDS
China’s strong exports have been a key support to the country’s post-COVID recovery, but a customs official said this week overall trade growth may slow in the second half of 2021, partly reflecting COVID-19 pandemic uncertainties.
“Headwinds to growth are likely to intensify during the second half of the year,” said Julian Evans-Pritchard, senior China economist at Capital Economics in a note.
“China’s COVID-19 export boom appears to have peaked and will unwind over the coming quarters as vaccine rollouts and reopening help to normalise global consumption patterns.”
New home prices rose in June at the slowest clip since April and property investment at its weakest pace this year as government measures to cool a hot housing market further tapped the brakes on growth.
The NBS data showed China’s industrial output grew 8.3% in June from a year ago, slowing from a 8.8% rise in May. Economists in the poll had expected a 7.8% year-on-year rise.
Retail sales grew 12.1% from a year earlier in June. Analysts in the poll had expected a 11.0% increase after May’s 12.4% rise.
Economists in the Reuters poll expected a 8.6% GDP expansion in 2021, which would be the highest annual growth in a decade and well above the country’s official target for growth higher than 6%. China was the only major economy to have avoided a contraction last year, expanding 2.3%.
Fixed asset investment grew 12.6% in the first six months of 2021 from the same period a year earlier, versus a forecast 12.1% uptick and down from a 15.4% jump in January-May.
China’s second-quarter growth suggests ‘uneven’ economic recovery
China’s economy grew more slowly than expected in the second quarter, according to official data, as slowing manufacturing activity, higher raw material costs and new COVID-19 outbreaks weighed on the country’s recovery.
Gross domestic product (GDP) expanded 7.9 percent in the April-June quarter from a year earlier, official data showed on Thursday, below expectations for a rise of 8.1 percent in a Reuters news agency poll of economists.
Growth slowed significantly from a record 18.3 percent expansion in the January-March period, when the year-on-year growth rate was heavily skewed by the COVID-19-induced slump in the first quarter of 2020.
June activity data slowed from the month before but beat expectations.
“The numbers were marginally below our expectation and the market’s expectation (but) I think the momentum is fairly strong,” said UOB economist Woei Chen Ho in Singapore.
“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.”
While the world’s second-largest economy has rebounded strongly from the COVID-19 crisis, buoyed by solid export demand and policy support, data in recent months suggest some loss in momentum. Higher raw material costs, supply shortages and pollution controls are weighing on industrial activity, while small COVID-19 outbreaks have kept a lid on consumer spending.
Investors are watching for the latest policy announcement from the central bank after the People’s Bank of China said last week it would reduce the amount of cash banks are required to keep as reserves.
The move released about 1 trillion Chinese yuan ($154.64bn) into the system to bolster the recovery.
On a quarterly basis, gross domestic product or GDP expanded 1.3 percent in the April-June period, the National Bureau of Statistics (NBS) said, just beating expectations for a 1.2 percent rise in the Reuters poll. The NBS revised down growth in the first quarter from the fourth quarter last year to 0.4 percent.
The NBS data also showed China’s industrial output grew 8.3 percent in June from a year ago, slowing from a 8.8 percent rise in May. Economists in the poll had expected a 7.8 percent year-on-year rise. Retail sales grew 12.1 percent from a year earlier in June. Analysts in the poll had expected a 11.0 percent increase after May’s 12.4 percent rise.
“The domestic economic recovery is uneven,” said Liu Aihua, an official at the NBS at a briefing on Thursday.
“We must also see that the global epidemic continues to evolve and there are many external instabilities and uncertain factors,” she said.
Data earlier this week showed China’s exports grew much faster than expected in June but a customs official said overall trade growth may slow in the second half of 2021, partly reflecting COVID-19 pandemic uncertainties.
Economists in the Reuters poll expected a 8.6 percent GDP expansion in 2021, which would be the highest annual growth in 10 years and well above the country’s official target for growth higher than 6 percent. China was the only main economy to have avoided a contraction last year, expanding 2.3 percent.
Premier Li Keqiang reiterated on Monday that China would not resort to flood-like stimulus.
Still, economists in the Reuters poll expected more support this year, forecasting a further cut in the bank reserve requirement ratio (RRR) in the fourth quarter.
Fixed asset investment grew 12.6 percent in the first six months from the same period a year earlier, versus a forecast 12.1 percent uptick and down from a 15.4 percent jump from January to May.
China’s economic recovery loses steam in June quarter
China’s economic growth slowed to a still-strong 7.9 per cent over a year earlier in the three months ending in June as a rebound from the coronavirus levelled off. Growth slowed from the previous quarter’s explosive 18.3 per cent expansion, which was magnified by comparison with early 2020 when the economy shut down to fight the coronavirus.
The economy expanded at a 1.3 per cent pace in the April-June quarter compared with the previous three months, the way other major economies report results. That reflects a return to normal for factory activity and consumer spending as government stimulus and easy credit wind down.
It was faster than the 0.6 per cent expansion in the previous quarter over the final three months of 2020, which had prompted warnings the rebound was ending.
“China’s economy sustained a steady recovery with production and demand picking up,” the National Bureau of Statistics said in a statement.
Post-Pandemic Recovery
Manufacturing, auto sales, and consumer spending have recovered to above pre-pandemic levels since the ruling Communist Party declared victory over the coronavirus last March and allowed factories and stores to reopen. Still, growth in retail spending has been weaker than expected.
That prompted Beijing to inject extra money last week into the pool available for lending to shore up business and consumer activity. But the central bank and economic planners say they are sticking to long-term plans that call for a return to normal policy.
The International Monetary Fund and private sector forecasters expect economic growth of about 8 per cent this year but say it should slow markedly in 2022. Retail spending in June rose 12.1 per cent over a year earlier.
That was down from the 13.9 per cent for the full quarter and well below the 33.9 per cent surge in the January-March quarter. Factory output rose 8.3 per cent in June over a year ago. Compared with May, it was up 0.6 per cent.