China's economy rebounds in Q2 after steep slump, consumption and investment still weak

BEIJING: China's economy returned to growth in the second-quarter after a deep slump at the start of the year, as lockdown measures ended and policymakers stepped up stimulus steps to combat the shock from the coronavirus crisis.

The world's second-largest economy was still not out of the woods, however, as consumption and investment remained in the doldrums, suggesting authorities will likely have to offer more support to strengthen the recovery.

Gross domestic product (GDP) rose 3.2% in the second-quarter from a year earlier, the National Bureau of Statistics said on Thursday, faster than the 2.5% forecast by analysts in a Reuters poll, but it is still the weakest expansion on record.

The bounce followed a steep 6.8% slump in the first quarter, the first such contraction since at least 1992 when quarterly gross domestic product (GDP) records began.

The GDP numbers are being closely watched around the world, especially as many countries continue to grapple with the COVID-19 pandemic even as China has largely managed to contain the outbreak and has begun to restart its economic engines.

"While in general it's fair to say that the numbers beat expectations, what the numbers also reveal is that we're seeing that the China consumer remains behind in terms of the recovery story," said Rodrigo Catril, a foreign exchange strategist at NAB in Sydney.

"It's very much a story of government stimulus-led recovery, which is very much focused on the industrial side. The consumer remains very cautious. That cautiousness is something the market is looking at in terms of countries where the consumer plays a bigger role, so that's obviously relevant for the U.S. as well."

MORE SUPPORT NEEDED

The economy contracted 1.6% in the first six months from a year earlier, the data showed, underscoring the sweeping impact of the health crisis.

On a quarter-on-quarter basis, GDP jumped 11.5% in April-June, the NBS said, compared with expectations for a 9.6% rise and a 10% decline in the previous quarter.

China's economy, the first in the world to be jolted by the coronavirus pandemic, has been recovering slowly in the past two months, though the bounce from the virus-induced downturn has been uneven.

Authorities are widely expected to maintain policy support in the second half to bolster the revival, despite concerns over rising debt risks.

While the economy is showing a steady recovery, a hard battle still lies ahead as the situation remains severe both at home and abroad, state radio quoted Premier Li Keqiang as saying on Monday. 

The government has rolled out a raft of measures, including more fiscal spending, tax relief and cuts in lending rates and banks' reserve requirements to revive the coronavirus-ravaged economy and support employment.

Rising coronavirus infections in some countries, including the United States, have overshadowed improved demand for Chinese exports while heavy domestic job losses and lingering health concerns have kept consumers cautious.

China's industrial output rose 4.8% in June from a year earlier, the data showed, quickening from a 4.4% rise in May. That marked the third straight month of growth for the vast sector, offering some relief to the economy as it tries to regain its footing.

But consumption and investment remain weak. Retail sales were down 1.8% on-year - the fifth straight month of decline and much worse than a predicted 0.3% growth, after a 2.8% drop in May. Fixed asset investment fell 3.1% in the first half of the year from the same period in 2019, compared with a forecast 3.3% fall and a 6.3% decline in the first five months of the year. But reflecting increased fiscal spending on big-ticket projects, the downturn in infrastructure investment eased, falling 2.7% in the first half from a year earlier, compared with a drop of 6.3% in the first five months.

 

Source: https://www.zawya.com/mena/en/economy/story/Chinas_economy_rebounds_in_Q2_after_steep_slump_consumption_and_investment_still_weak-TR20200716nL3N2EM318X2/

 

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