China's economy grew at a frail pace in the second quarter of 2023. Demand weakened at home and abroad. The post-Covid momentum has faltered rapidly and has raised pressure on policymakers to deliver further stimulus. Chinese authorities face a daunting task in trying to keep the economic recovery on track.
Gross domestic product grew just 0.8% in April-June from the previous quarter, on a seasonally adjusted basis, data released by the National Bureau of Statistics. On a year-on-year basis, GDP expanded 6.3% in the second quarter, accelerating from 4.5% in the first three months of the year, but the rate was well below the forecast for growth of 7.3%. The annual pace was the quickest since the second quarter of 2021, although it was heavily skewed by economic pains caused by stringent Covid-19 lockdowns in Shanghai and other major cities last year.
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The latest data raises the risk of China missing its modest 5% growth target for 2023. More timely June data, which was released alongside the GDP numbers, showed China's retail sales grew 3.1%, slowing sharply from a 12.7% jump in May. Analysts had expected growth of 3.2%.
Industrial output growth unexpectedly quickened to 4.4% in June from 3.5% seen in May, but demand remains lukewarm. Private fixed-asset investment shrank 0.2% in the first six months, a sharp contrast to the 8.1% growth in investment by state entities, suggesting weak private business confidence.
Recent data showed a rapidly faltering post-Covid recovery as exports declined the most in three years due to cooling demand at home and abroad while a prolonged downturn in the key property market has sapped confidence. The weak overall momentum and global recession risks have raised expectations policymakers will need to do more to shore up the world's second-biggest economy.
Authorities are likely to roll out more stimulus steps including fiscal spending to fund big-ticket infrastructure projects, more support for consumers and private firms, and some property policy easing. But a quick turnaround is unlikely.
While China is seen on track to hit its modest 2023 growth target, there are risks of the annual goal being missed for the second year in a row. China's economy grew just 3% in 2022 due to Covid curbs, badly missing the official target. Most analysts say policymakers are unlikely to deliver any aggressive stimulus due to worries about growing debt risks.
However, a deeper slowdown could stoke more job losses and fuel deflationary risks, further undermining private-sector confidence. Youth jobless rate climbed to 21.3% in June from 20.8% in May, a new record high, as graduates scrambled for limited offers during the job hunting season.
China's property sector, which accounts for about a quarter of the economy, remains firmly in a downtrend, with new home prices for June stalling. Property investment slumped 20.6% in June year-on-year after a 21.5% drop in May.
China may ease its monetary policy and target higher fiscal support. Consequences may include inflation and higher public debt. But this is better than driving the economy to a full-blown recession. As long as U.S. remains belligerent, it is difficult to see a positive outcome for both.
For Malaysia, we need to draw-up plans to overcome a “soft” export market including finding new markets for some of our goods and services. We cannot afford to plod along on a “cruise” mode.
Reference:
China’s frail 2Q GDP growth raises urgency for more policy support, Kevin Yao & Joe Cash, Reuters, TheEdgeMalaysia, 18 July 2023
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