China’s economy falters in 2nd quarter

BEIJING—China’s economy grew much slower than expected in the second quarter as a protracted property downturn and job insecurity knocked the wind out of a fragile recovery, keeping alive expectations Beijing will need to unleash even more stimulus.

The world’s second-largest economy grew 4.7 percent in April-June, official data showed, its slowest since the first quarter of 2023 and missing a 5.1-percent forecast in a Reuters poll. It also slowed from the previous quarter’s 5.3-percent expansion.

Of particular concern was the consumer sector, with retail sales growth grinding to an 18-month low as deflationary pressures forced businesses to slash prices on everything from cars to food to clothes.

“Overall, the disappointing GDP (gross domestic product) data shows that the road to hitting the 5-percent growth target remains challenging,” said Lynn Song, chief economist for Greater China at ING.

“A negative wealth effect from falling property and stock prices, as well as low wage growth amid various industries’ cost cutting is dragging consumption and causing a pivot from big ticket purchases toward the basic ‘eat, drink and play’ theme consumption,” he added.

Among those under pressure was Swatch Group, the world’s biggest watchmaker, which reported a steep drop in sales and earnings amid weak demand in China.

Difficult fix

The yearslong property crisis deepened in June as new home prices fell at the fastest pace in nine years, battering consumer confidence and constraining debt-laden local governments’ ability to generate fresh funds through land sales.

Analysts expect cutting debt and boosting confidence to be the main focus of a key economic leadership meeting in Beijing this week, although solving one of those problems may make it difficult to fix another.

The government is aiming for economic growth of around 5.0 percent for 2024, a target that many analysts believe is ambitious and may require more stimulus.

The sharper-than-expected growth slowdown in the second quarter prompted Goldman Sachs to lower its forecast for China’s 2024 growth to 4.9 percent from 5.0 percent.

“To counteract weak domestic demand, we believe more policy easing is necessary through the remainder of this year, especially on the fiscal and housing fronts,” said Goldman Sachs economists, led by Lisheng Wang, in a note on Monday.

Falling yuan

On a quarterly basis, growth came in at 0.7 percent from a downwardly revised 1.5 percent in the previous three months, the data from the National Bureau of Statistics (NBS) showed.

To counter soft domestic demand and a property crisis, China has boosted infrastructure investment and ploughed funds into high-tech manufacturing.

China’s yuan and stocks fell following the disappointing data, but share markets later closed higher as investors bet on more stimulus.

The NBS said while bad weather accounted for some of the hit to growth in the second quarter, the economy faced increasing external uncertainties and domestic difficulties in the second half.

Economic growth in China has been uneven with industrial output outstripping domestic consumption, fanning deflationary risks amid the property downturn and mounting local government debt.

While solid Chinese exports have provided some support, rising trade tensions now pose a threat.

Broadly reflecting those trends, separate data on Monday showed factory output growth beating expectations in June but still slowing from May.