China S Economy Shrinks Sharply In Second Quarter Global Risks Darken Outlook

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China’s economy sinks in Q2, with year-on-year growth also slowing significantly Widespread COVID lockdowns hit industrial activity, demand June shows a recovery in activity, but global risks darken the outlook New outbreaks of coronavirus, war in Ukraine, global interest rate hikes, pressure on the pile Analysts expect full-year GDP growth to lag the government’s target of 5.5%

BEIJING, July 15 (Reuters) – China’s economy shrank sharply in the second quarter, underscoring the colossal toll on activity from extended COVID lockdowns and pointing to persistent pressure in coming months from a gloomy global growth outlook. Friday’s data comes at a time of fears of a global recession as policymakers raise interest rates to curb soaring inflation, weighing more on consumers and businesses worldwide as they grapple with the challenges of the war in Ukraine and the holiday supply chain. Gross domestic product fell 2.6 percent in the second quarter from the previous quarter, official data showed, compared with expectations for a 1.5 percent decline and a revised 1.4 percent gain in the previous quarter. Sign up now for FREE unlimited access to Reuters.com Register On a year-over-year basis, GDP in the April-June quarter rose a tepid 0.4 percent, missing forecasts for a 1.0 percent rise, according to a Reuters poll of analysts, a sharp slowdown from 4.8 percent in the first quarter. For the first half of the year, GDP grew by 2.5%, well below the government’s target of around 5.5% growth for this year. “China’s economy is on the brink of falling into stagflation, although the worst is over in the May-June period. You can rule out the possibility of a recession or two consecutive quarters of contraction,” said Toru Nishihama, chief economist at Dai-ichi Life Research Institute in Tokyo. “Given soft growth, China’s government is likely to implement economic stimulus measures from now on to revive its growth, but the hurdles are high for the PBOC to cut interest rates further, as it will boost inflation that has been kept relatively low at present. “ Full or partial lockdowns were imposed in major centers across the country in March and April, including in the commercial capital Shanghai, which saw an annual GDP contraction of 13.7% last quarter. While many of those restrictions have since been lifted and June’s data showed signs of improvement, analysts do not expect a rapid economic recovery. China is sticking to its tough policy of zero COVID-19 amid new outbreaks, the country’s real estate market is in deep recession and the global outlook is darkening. 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. read more

POSTPONED IN JUNE TEMPORARY?

Analysts believe the scope for further central bank policy easing could be limited by concerns about capital outflows as the Federal Reserve and other economies aggressively raise interest rates to combat soaring inflation. read more China’s rising consumer prices, while not as hot as elsewhere, may also add constraints to monetary policy easing. A Reuters poll predicts China’s growth will slow to 4.0 percent in 2022, well below the official growth target of about 5.5 percent. Data on June activity, also released on Friday, showed China’s industrial output rose 3.9 percent in June from a year earlier, accelerating from a 0.7 percent rise in May, though below the 4.1% growth forecast in a Reuters poll. Retail sales, on the other hand, rose 3.1 percent from a year ago in June and posted the fastest growth in four months after authorities lifted a two-month lockdown in Shanghai. Analysts had expected a 0% rise after a 6.7% drop in May. “Retail growth shows that lockdowns have been the main burden on consumption, with demand clearly picking up when Shanghai and other major cities came out of lockdowns in late May,” said Jacob Cooke, CEO of WPIC Marketing + Technologies, in Beijing. “Consumers still harbor some uncertainty about lockdowns, but with indications that future lockdowns will not be as severe, we are optimistic that consumption will continue to recover in the second half.” Fixed investment rose 6.1% in the first half of the year compared to the same period a year earlier, against forecasts for a 6.0% rise and down from a 6.2% jump in January-May. The employment situation remained fragile, with the nationwide survey-based unemployment rate falling to 5.5 percent in June from 5.9 percent in May as the economy recovered. However, youth unemployment hit a record 19.3% in June, up from 18.4% in May. A shaky recovery in China’s capital-starved real estate sector is being further pressured by a growing number of homebuyers across the country pausing mortgage payments until developers resume construction of pre-sold homes. Friday’s data showed house prices fell 0.5% from a year ago, worsening from a 0.1% drop the previous month, while monthly growth also failed to accelerate. read more Property investment fell 9.4 percent in June, worsening from a 7.8 percent drop in May, while property sales extended another 18.3 percent drop last month, according to Reuters estimates. “Even with some data massage, it’s hard to see how the government’s target of ‘around 5.5%’ growth this year can be met,” analysts at Capital Economics said. “That would require a huge acceleration in the second half of this year, which is unlikely.” Sign up now for FREE unlimited access to Reuters.com Register Reporting by Kevin Yao, Stella Qiu and Ellen Zhang Editing by Shri Navaratnam Our Standards: The Thomson Reuters Trust Principles.