Annual GDP growth accelerates in the second quarter, but underlying momentum slows
GDP expanded 6.3% on an annual basis in Q2 (Q1: +4.5% year on year). Q2’s reading marked a two-year high, but undershot market expectations of a 7.0% expansion.
The services sector grew 7.4% annually in the second quarter, picking up from the first quarter’s 5.4% increase and marking the best reading since Q2 2021. In addition, the industrial sector gained steam, growing 5.2% in Q2 (Q1: +3.3% yoy). Agricultural sector growth was steady at 3.7% in Q2.
On a seasonally-adjusted quarter-on-quarter basis, economic growth moderated to 0.8% in Q2, following the previous period’s 2.2% growth.
Looking at June data, growth in retail sales slowed to 3.1%, while growth in industrial output and nominal fixed investment accelerated to 4.4% and 3.8% respectively. Meanwhile, a host of property indicators, including real estate investment, the sales area of commercial housing, and the real estate sentiment index, deteriorated in June.
Turning to H2, annual growth rates will slow relative to Q2 due to a less favorable base of comparison. Moreover, quarter-on-quarter growth will likely be subdued by pre-pandemic standards.
On the prospect of stimulus measures ahead, ING’s Robert Carnell said:
“Some markets are bracing for the sort of bazooka stimulus response that we have seen at times in the recent past when China has been struggling economically. […] Instead of a bazooka, […] we expect we will see more of a shot-gun approach to stimulus, with many smaller and more targeted measures adopted. More of a micro response than a macro one, including a combination of further very modest monetary policy easings, extended subsidies and tax breaks, but no wall of money.”
United Overseas Bank’s Ho Woei Chen held a similar view:
“Any additional stimulus measures may disappoint given that the Chinese economy is still likely on track for the official target of “around 5.0%” this year. We maintain our expectation of stronger property support measures and our call for another cut to banks’ reserve requirement ratio (RRR) in 2H23.”
Nomura analysts said:
“We do expect Beijing to introduce a raft of supportive measures in H2, including two 10bp rate cuts and additional fiscal transfer to local governments. However, these measures may not turn things around, due to weak confidence, negative sentiment, the huge fiscal cliff due to the collapse of land sales, clogged transmission channels, a shrinking tool box, slow decision-making on economic matters and conflicts among multiple targets. We believe markets should curb their expectations for a fast, cure-all package.”
China GDP Chart
China GDP Data
|Economic Growth (GDP, ann. var. %)||6.7||6.0||2.2||8.4||3.0|
|GDP (USD bn)||13,896||14,277||14,689||17,816||17,977|
|GDP (CNY bn)||91,928||98,652||101,357||114,924||121,021|
|Economic Growth (Nominal GDP, ann. var. %)||10.5||7.3||2.7||13.4||5.3|