Beijing, July 16: China’s economy grew much slower than expected in the second quarter of 2024 as a protracted property downturn and job insecurity undermined a fragile recovery. This development has heightened expectations that Beijing will need to introduce more stimulus measures.
The world’s second-largest economy grew by 4.7% in the April-June period, official data showed. This marks the slowest growth since the first quarter of 2023 and falls short of the 5.1% forecast in a Reuters poll. It also represents a deceleration from the previous quarter’s 5.3% expansion.
Of particular concern was the consumer sector, with retail sales growth grinding to an 18-month low as deflationary pressures forced businesses to slash prices on a wide range of goods, from cars to food to clothes.
“Overall, the disappointing GDP data shows that the road to hitting the 5% growth target remains challenging,” said Lynn Song, chief economist for Greater China at ING. “A negative wealth effect from falling property and stock prices, as well as low wage growth amid various industries’ cost-cutting, is dragging consumption and causing a pivot from big-ticket purchases toward the basic ‘eat, drink and play’ theme consumption.”
The property sector remains a significant drag on the economy. In June, new home prices fell at their fastest pace in nine years, further eroding consumer confidence and constraining the ability of debt-laden local governments to generate fresh funds through land sales.
Swatch Group (UHR.S), the world’s biggest watchmaker, reported a steep drop in sales and earnings amid weak demand in China, reflecting broader pressures on consumer spending.
Analysts expect the government to focus on cutting debt and boosting confidence during a key economic leadership meeting in Beijing this week. However, solving one problem may complicate efforts to address the other.
The government aims for economic growth of around 5.0% for 2024, a target many analysts believe is ambitious and may require additional stimulus measures. Following the sharper-than-expected growth slowdown in Q2, Goldman Sachs lowered its forecast for China’s 2024 growth to 4.9% from 5.0%.
“To counteract weak domestic demand, we believe more policy easing is necessary through the remainder of this year, especially on the fiscal and housing fronts,” said Goldman Sachs economists led by Lisheng Wang in a note on Monday.
On a quarterly basis, growth came in at 0.7% from a downwardly revised 1.5% in the previous three months, according to data from the National Bureau of Statistics (NBS).
In response to soft domestic demand and the property crisis, China has boosted infrastructure investment and ploughed funds into high-tech manufacturing. Despite the disappointing data, China’s yuan and stocks fell, though share markets later closed higher as investors bet on more stimulus.
The NBS noted that bad weather contributed to the slower growth in Q2 but highlighted increasing external uncertainties and domestic difficulties for the second half of the year.
Economic growth in China has been uneven, with industrial output outstripping domestic consumption, which has raised deflationary risks amid the property downturn and mounting local government debt. While solid Chinese exports have provided some support, rising trade tensions now pose a threat.
Separate data on Monday showed factory output growth beat expectations in June but still slowed from May. This follows earlier data showing China’s exports in June were up 8.6% from a year earlier, while imports unexpectedly shrank by 2.3%, suggesting manufacturers were frontloading orders to get ahead of tariffs from trade partners.
The bigger pain point, however, was in retail sales, which rose 2.0% year-on-year, missing forecasts and marking the slowest growth since December 2022. “Among all the monthly figures released today, the highlight is the weak retail sales,” said Xing Zhaopeng, senior China strategist at ANZ. “Household consumption remains very weak…with employers slashing salaries and high youth unemployment, households will still be cautious going forward,” Xing added.