China’s economy experienced slower growth than expected in the second quarter, with a growth rate of 4.7% in April-June, missing the analyst forecast of 5.1%. The consumer sector was particularly affected, with retail sales growth reaching an 18-month low due to deflationary pressures. As a result, consumers are focused on basic necessities rather than big-ticket purchases.
The property crisis deepened in June as new home prices fell at the fastest pace in nine years, affecting consumer confidence and local government revenues. Analysts believe that addressing debt and boosting consumer confidence will be key topics at an upcoming economic leadership meeting in Beijing. The government aims for economic growth of around 5% for 2024, which may require additional stimulus measures.
To counter soft domestic demand and the property crisis, China has increased infrastructure investment and support for high-tech manufacturing. However, the disappointing economic data led to a decline in the yuan and stock market. Economic growth has been uneven in China, with industrial output surpassing domestic consumption, leading to deflationary risks amidst the property downturn and growing local government debt.
Despite solid Chinese exports, rising trade tensions are a concern. Retail sales growth was weak in the second quarter, signaling cautious consumer spending due to salary cuts and youth unemployment. Property investment and home sales have also declined, while bank lending faltered. To support growth, China’s central bank has committed to a supportive monetary policy stance, with expectations for rate cuts in the third quarter.
Analysts predict that the government may implement additional property-supporting measures after a Politburo meeting in late July. These measures could include local state-owned enterprises buying unsold completed homes and a relending loan facility for affordable housing. While reforms are necessary, they are expected to be modest to avoid being seen as a failure. Overall, analysts are cautiously optimistic about China’s economic growth prospects for the rest of 2024.
