China’s economy grew slightly slower than expected in the second quarter, weighed down by higher raw materials costs and new COVID-19 outbreaks. Expectations build that policymakers may have to do more to support the recovery.
Gross domestic product (GDP) expanded 7.9 percent in the April-June quarter from a year earlier, official data showed on July 15, missing expectations of an 8.1 percent rise in a Reuters 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-induced slump in the first quarter of 2020.
Retail sales and industrial output growth was slower 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 materials costs, supply shortages, and pollution controls are weighing on industrial activity, while 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 percent, up slightly from a 5 percent average for the first quarter, according to the National Bureau of Statistics (NBS).
On a quarterly basis, GDP expanded 1.3 percent in the April-June period, the 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.
Policy Easing?
The PBOC move, which released about $154.64 billion in long-term liquidity to bolster the recovery, comes even as policymakers have sought to normalize policy after the economy’s 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 in China and around the world.
“The domestic economic recovery is uneven,” said Liu Aihua, an official at the NBS at a briefing on Thursday.
