19 Jul 2023
The Chinese economy registered growth of 6.3% in the second quarter year-on-year, under the 7% forecast by analysts.
The growth figure is predominantly due to the low starting position during the same three months last year, when Shanghai – the financial hub of the world's second-largest economy – along with other parts of the country, were in stringent Covid lockdowns.
GDP quarter-on-quarter growth in the second quarter stood at 0.8% on a seasonally adjusted basis, according to data from China's National Bureau of Statistics on Monday, compared to analysts' expectations for 0.5% growth in a Reuters news agency poll. In addition, the figure is significantly less than the 2.2% growth registered in the first three months of the year.
Furthermore, on a year-on-year basis, GDP growth had been better than forecast in Q1 at 4.5% as there was a surge in consumer spending following the lifting of zero-Covid restrictions at the end of last year. Despite the 6.3% growth in Q2, the rate was below the 7.3% forecast.
"The data suggests that China's post-COVID boom is clearly over," according to Carol Kong, Commonwealth Bank of Australia economist.
"The higher-frequency indicators are up from May's numbers but still paint a picture of a bleak and faltering recovery, and at the same time, youth unemployment is hitting record highs."
According to economists, the latest data increases the risk of China missing out on its modest 5% growth target for this year.
Moreover, June data – which was published alongside the GDP figures – revealed China's retail sales increased by 3.1%, a steep slowdown from a 12.7% rise the month before. Whereas analysts had forecast growth of 3.2%.
Industrial output growth unexpectedly accelerated to 4.4% in June from 3.5% in May, yet demand remains subdued.
However, although China is on course to reach its 2023 growth target, there are risks of the objective being missed for the second consecutive year.
"It was quite a disappointing number at just 6.3%, so clearly, the momentum is slowing down," stated Alvin Tan, head of Asia FX strategy at RBC Capital Markets in Singapore.
"At this pace of deceleration, there's now actually a risk that the growth target may not be achieved - this 5% may not be achieved if the economy continues to decelerate at this pace. So I think this does raise greater urgency for more policy support soon."