China, the world’s second-largest economy, experienced a slowdown in the second quarter of the year. Official data revealed that the economy only grew by 4.7% in April-June, marking its slowest growth since the first quarter of 2023. This figure fell short of analysts’ expectations of a 5.1% growth, as projected in a Reuters poll. The slowdown was also evident when compared to the 5.3% expansion in the previous quarter.
Key economic indicators from the second quarter included a 4.7% year-on-year GDP growth, which was lower than the forecasted 5.1%. The quarter-on-quarter GDP growth was only 0.7%, missing the projection of 1.1%, and lower than the 1.5% growth recorded in the first quarter of the year. Looking ahead, analysts predict a GDP growth rate of 5.0% for 2024, followed by a slower growth rate of 4.5% in 2025.
Alvin Tan, the Head of Asia FX Strategy at RBC Capital Markets in Singapore, commented on the disappointing outcome of the second-quarter GDP growth. He highlighted the weakening growth momentum and the need for additional support to achieve the 5% growth target for the year. The housing market and consumption sector were identified as areas of weakness, contributing to the overall economic slowdown.
Lynn Song, the Chief Economist for Greater China at ING in Hong Kong, emphasized the impact of the property sector and consumption on GDP growth. Property investment declined by 10.1% year-on-year in the first half of the year, with ongoing price decreases. Weak consumer confidence and a shift towards basic consumption patterns were also noted as factors hindering economic recovery. Song suggested that further policy support would be necessary to reach the 5% growth target.
China’s economy has faced challenges in sustaining post-COVID recovery, including a prolonged property downturn, rising local government debts, and subdued private-sector spending. Analysts forecast a 5% growth rate for 2024, followed by a slower rate of 4.5% in 2025. The government’s target of 5% economic growth for the year is deemed ambitious by many analysts, especially considering last year’s growth rate of 5.2%, which was influenced by the impact of the pandemic in 2022.
To counter the economic slowdown, China has relied on infrastructure projects to bolster the economy, given consumer reluctance to spend and business hesitancy to expand. However, Fitch’s negative outlook on China’s sovereign credit rating in April raised concerns about risks to public finances, as the government directed more funds towards infrastructure and high-tech industries amidst a shift away from the property sector.
The data from the second quarter of the year highlights the challenges facing China’s economy and the need for additional stimulus measures to support growth. The ongoing weaknesses in the property and consumption sectors underscore the complexity of achieving the target growth rate of 5% for the year. Policymakers will need to implement further supportive measures to overcome these obstacles and stimulate economic recovery in China.