China second quarter GDP rises 6.2% year-on-year, slowest in 27 years
“It sounds like if retail sales are up as strong as they are, the domestic side has recovered a bit based on stimulus"
China’s second-quarter economic growth slowed to its weakest pace in at least 27 years, in line with expectations, as demand at home and abroad cooled in the face of a bruising trade war with the United States.
The economy grew 6.2% in the second quarter from a year earlier, slower than 6.4% in the first quarter, the National Bureau of Statistics said on Monday.
Analysts polled by Reuters had expected the economy to have expanded 6.2%, which would be the slowest pace since the first quarter of 1992, the earliest quarterly data on record.
KEY POINTS
** Q2 GDP +6.2% y/y (f’cast +6.2%, prev +6.4%)
** Q2 GDP +1.6% q/q (f’cast +1.5%, prev +1.4%)
** June industrial output +6.3% y/y (f’cast +5.2%, prev +5.0%)
** June retail sales +9.8% y/y (f’cast +8.3%, prev +8.6%)
** Jan-June fixed asset investment +5.8% y/y (f’cast +5.5%, Jan-May +5.6%)
** China Jan-June property investment +10.9% y/y
COMMENTARY:
STEVE COCHRANE, CHIEF APAC ECONOMIST, MOODY’S ANALYTICS, SINGAPORE
“It sounds like if retail sales are up as strong as they are, the domestic side has recovered a bit based on stimulus. So, it all may be temporary, especially if industrial production is only around 5%.
“Shifting the reserve requirement down would be an easy thing for the PBOC to do. The trick is to try to channel any additional liquidity towards small enterprises and the private sector where they can do the most good. That may be harder said than done. I also think we are in a wait-and-see mode if the United States and China will get back together again.”
“Our primary assumption for the second half is that the talks will resume. If they don’t, I would pull my growth forecasts for the second half down.”
AIDAN YAO, SENIOR ASIA EMERGING MARKETS ECONOMIST, AXA INVESTMENT MANAGERS, HONG KONG
“There’s a lot of talk about support for big item consumption but we haven’t seen that coming through and there’s been talk about RRR cuts and big monetary stimulus and we haven’t really seen any big bazooka being put out.
“They are behaving a lot more cautiously. We do expect more measures to be rolled out. They’ve certainly done a lot more (liquidity management) over the last few weeks.
“If push comes to shove they have more scope to cut taxes and fees... and they could fulfil market speculation of another round of auto subsidies to boost consumption.
“Fiscal policy is likely to be in the driving seat and monetary policy will act in a supportive role in the coming months.
“Cutting the benchmark deposit and lending rates — the likelihood is very low. It’s more possible (that) they twist the market-oriented rates — cutting the interest rates of all those liquidity facilities also sends an important signal to the market.”
BEN JARMAN, ECONOMIST, JPMORGAN CHASE, SYDNEY
“These are generally stronger numbers than we had thought. We are seeing a broad upside surprise.”
“Policy in China is working under constraints at the moment as they are trying to achieve multiple objectives. They want to support growth via infrastructure and consumer spending, but they are also careful not to re-ignite a housing bubble. So to that extent, it means the pressure is off in the near term to do more on policy.”
BACKGROUND:
- China’s economy has been slowing since last year as the trade war with the United States took a toll on factory activity, exports and domestic demand, suggesting that a spate of stimulus measures - including tax cuts and easier lending rules - have yet to have a notable effect on overall growth.
- Washington sharply raised tariffs on $200 billion of Chinese goods in May, increasing the strain on a struggling manufacturing sector and threatening to crush already-thin profit margins.
- Though both sides agreed in late June to resume negotiations, and Washington said it would hold off on additional levies, existing tariffs remain in place.
- No time frame has been set for the new round of trade talks, and Beijing and Washington remain at odds over significant issues.
- The government has been leaning more on fiscal stimulus to underpin growth this year, announcing massive tax cuts worth nearly 2 trillion yuan ($291 billion) and a quota of 2.15 trillion yuan for special bond issuance by local governments.
- The People’s Bank of China (PBOC) has slashed banks’ reserve requirement ratio (RRR) six times since early 2018 to turn around soft credit growth. It has also injected large amounts of liquidity into the financial system and guided short-term interest rates lower.
- But the economy has been slow to respond, and investors fear a longer and costlier trade war between the world’s two largest economies could trigger a global recession.
- Markets are eagerly waiting to see whether the PBOC will follow policy moves by the U.S. Federal Reserve, which is widely expected to cut rates at its meeting at the end of this month.
- China’s economic growth is expected to cool to 6.2% this year, a 29-year low, according to a Reuters poll. The economy grew 6.6% last year.
