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China’s Economic Recovery Stalls in Q2, Threatening Growth Target

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China’s Economic Recovery Stalls in Q2, Threatening Growth Target

Title: China’s Economic Recovery Slows in Second Quarter, Global Growth Concerns Loom

China’s economic recovery faced a setback in the second quarter, putting the country’s growth targets for the year at risk and raising concerns about a potential global slowdown. In the wake of the COVID-19 pandemic, concerns have intensified over the country’s economic performance in the months ahead.

Gross domestic product (GDP) in the second quarter grew at a slower-than-expected rate of 6.3 percent, compared to the same period last year when numerous Chinese cities were under lockdown. Although showing slight improvement from the first quarter, this figure falls short of maintaining the desired growth momentum.

The latest data also revealed a concerning trend of deflation, as economy-wide prices experienced their first decline since 2020. Furthermore, an alarming 21 percent youth unemployment rate added to the worries surrounding China’s economic landscape.

The sluggish economic performance has magnified calls for additional stimulus measures to support the Chinese economy. However, Beijing has hinted at potential limitations, aligning with its relatively modest growth target of around 5 percent for the year. Analysts have also revised their growth forecasts, with Citigroup and Morgan Stanley both cutting estimates to 5 percent.

June data released by China’s national statistics office highlighted a slowdown in consumer spending, which has been a key driver of the country’s economy. Retail sales rose by only 3.1 percent in June compared to the same period last year, a significant drop from May’s 12.7 percent growth.

The main concern arises from the dwindling engine for recovery, as Louis Kuijs, chief economist for Asia Pacific at S&P Global Ratings, expressed uncertainties about the recovery driven by consumption and services.

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Taking into account the base effects from last year’s lockdowns, economists have closely monitored quarterly and two-year average growth rates. Both measures have revealed a deceleration in the second quarter compared to the initial three months of the year.

Several key indicators from the data are as follows: in June, retail sales only grew by 3.1 percent year-on-year, falling short of the predicted 3.3 percent rise; industrial production rose 4.4 percent, surpassing the projected 2.5 percent and May’s 3.5 percent growth; investment in fixed assets increased by 3.8 percent in the first half of the year, higher than the predicted 3.4 percent; while the urban unemployment rate remained constant at 5.2 percent, the youth unemployment rate reached 21.3 percent. Moreover, compared to the first quarter, GDP growth slowed to 0.8 percent from 2.2 percent.

China’s real estate sector also saw a downturn in investment in June, reflecting ongoing challenges in the housing market. As speculation grows regarding possible stimulus measures, authorities remain wary of increasing debt, particularly in the real estate sector. Consequently, any potential support measures are expected to be more targeted and smaller in scale compared to previous years.

Although the People’s Bank of China refrained from easing policy in their recent meeting, many analysts anticipate a cut in the coming months. However, doubts persist about whether such measures will have a significant impact on the economic situation.

Private company investment in fixed assets experienced a decline in June, while household savings remained high, further highlighting the weak sentiment surrounding the economy.

Experts from Goldman Sachs Group and HSBC Holdings Plc expect that any forthcoming stimulus measures will likely be less substantial and more specifically directed compared to previous recessions.

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As China’s economic recovery struggles to maintain momentum, uncertainties loom over the global economy. Attention now shifts to the Communist Party’s Politburo meeting later this month, where key economic policies for the remainder of the year will be decided.

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