China's economy contracts in Q2, global risks darken outlook
- China Q2 GDP +0.4% y/y, versus +1.0% in poll
- China Q2 GDP -2.6% q/q, versus -1.5% in poll
- Industrial output missed forecast
- Retail sales, infrastructure growth beat expectations
- Jobless rate eased in June as economy rebounded
China's economy contracted sharply in the second quarter while annual growth also slowed significantly, highlighting the colossal toll on activity from widespread COVID lockdowns, which jolted industrial production and consumer spending.
Gross domestic product fell 2.6% in the second quarter from the previous quarter, official data showed on Friday, compared with expectations for a 1.5% decline and a revised 1.4% gain in the previous quarter.
On a year-on-year basis, GDP in the April-June quarter grew a tepid 0.4%, missing forecast of a 1.0% gain, according to a Reuters poll of analysts, a sharp slowdown from 4.8% in the first quarter.
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For the first half of the year, GDP grew 2.5%.
Full or partial lockdowns were imposed in major centres across the country in March and April, including the commercial capital Shanghai.
While many of those curbs have since been lifted, and June data offered signs of improvement, analysts do not expect a rapid economic recovery. China is sticking to its tough zero-COVID policy amid fresh flare-ups, the country's property market is in a deep slump and the global outlook is darkening.
The imposition of new lockdowns in some cities and the arrival of the highly-contagious BA.5 variant have heightened concerns among businesses and consumers about a prolonged period of uncertainty.
China has been ramping up policy support for the economy, although analysts say the official growth target of around 5.5% for this year will be hard to achieve without doing away with its strict zero-COVID strategy.
JUNE DATA SHOWS SOME BOUNCE
Data on June activity showed that China's industrial output grew 3.9% in June from a year earlier, quickening from a 0.7% rise in May, although it was weaker than a 4.1% increase that analysts had forecast in a Reuters poll.
Retail sales, on the other hand, rose 3.1% from a year ago in June and marked the quickest growth in 4 months, after authorities lifted a two-month lockdown in Shanghai. Analysts had expected a 0% increase after May's 6.7% drop.
Fixed asset-investment grew 6.1% in the first six months of the year from the same period a year earlier, versus a forecast 6.0% rise and down from a 6.2% jump in January-May.
The employment situation improved, with the nationwide survey-based jobless rate falling to 5.5% in June from 5.9% in May as the economy rebounded.
A nascent recovery in China's capital-starved property sector is being overshadowed by a growing number of homebuyers across the country halting mortgage payments until developers resume construction of pre-sold homes.
Data on Friday showed that home prices fell 0.5% from a year ago, worsening from a 0.1% dip in the previous month, while growth on a monthly basis also failed to pick up. read more
China's property investment also fell 5.4% year-on-year in the first half of the year, after a 4.0% decline in the first five months.
The central bank on Wednesday pledged to keep liquidity reasonably ample and lower funding costs, foreseeing a temporary rise in the overall level of debt amid efforts to revive the economy.
It also rolled over maturing medium-term policy loans on Friday while keeping interest rate unchanged for a sixth straight month.
Analysts believe room for the central bank to ease policy further could be limited by worries about capital outflows, as the U.S. Federal Reserve aggressively raises interest rates to fight soaring inflation.
China's rising consumer prices, while not as hot as elsewhere, also may add to constraints on monetary policy easing. Many analysts expect consumer inflation to pick up and surpass 3% in the coming months, but the whole year average level will still be within the annual target of around 3%.
A Reuters poll forecast China's growth to slow to 4.0% in 2022, far below the official growth target of around 5.5%.
