China’s GDP Q2: The economy is still growing. But the recovery is slowing down

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GDP rose 7.9% in the April-June quarter compared to the same period a year ago, China’s National Bureau of Statistics said Thursday.

This growth rate has been significantly slower than the 18.3% year-on-year increase that China recorded in the first quarter – although this record figure largely reflects how deeply the economy has collapsed in the early 2020, as the coronavirus pandemic was setting in.

The last digit was also a little lower than expected. Analysts polled by Reuters predicted that the Chinese economy would grow 8.1% in the second quarter.

Because China’s initial recovery last year was so rapid, the country has “essentially fully recovered,” said Julian Evans-Pritchard, senior Chinese economist for Capital Economics.

“In fact, it is above its pre-virus trend,” he said. told CNN Business. “There’s just a lot less room for it to keep growing rapidly, so it runs into those constraints, and that’s why we’re starting to see those growth rates weaken quite dramatically.”

Recent warning signs

The Chinese economy has has shown worrying signs in recent months. Record commodity prices pushed factory inflation to the highest levels in more than a decade, while supply chain disruptions caused by late deliveries and an energy shortage slowed production of factories.
Growth in the service sector has also slowed recently, as a Covid-19 outbreak in southern China and subsequent containment measures have dampened consumer and business activity.

“We are facing a complicated domestic and international environment, especially rising commodity prices, which has put tremendous pressure on business costs,” said Liu Aihua, an NBS spokesperson at a press conference in Beijing on Thursday. She cited the need to “manage risk properly” and help small and medium-sized businesses grow.

The government has also released data showing that some production has slowed down over the past month. Industrial production rose 8.3% in June from a year earlier, down slightly from the 8.8% growth recorded in May. Production in auto manufacturing fell more than 4% last month, compared to the previous year, which Liu attributed mainly to the current shortage of chips.

Uneven recovery

Domestic demand, however, remains the weak link, according to Yue Su, senior economist for The Economist Intelligence Unit.

Retail sales growth slowed to 12.1% in June, from 12.4% in May, according to data released Thursday. It is the slowest growth rate this year.

“China’s second-quarter GDP data continues to point to a patchy recovery,” Yue said, adding that retail sales have yet to return to the trends seen before the pandemic.

She said reviving domestic demand was going to be “a challenge” as households continue to struggle with budgeting for their limited time and money.

Unemployment is also a concern.

The urban unemployment rate remained at 5% in June, unchanged from May. But the youth unemployment rate rose to 15.4% for 16-24 year olds at the end of June, from 13.6% three months earlier.

“We are indeed facing great pressure on employment,” NBS’s Liu said, noting that the number of college graduates has hit a new record of nearly 9.1 million people this year. “We must continue to prioritize stabilizing employment and creating more jobs.”

Always on target

Even though the recovery of the world’s second-largest economy is pulling back, China is still on track to exceed its annual growth target this year.

“Overall, the Chinese economy appears to be on track for recovery, with the 6% annual growth target to be achieved,” wrote Chaoping Zhu, global markets strategist for JP Morgan Asset Management, in a research note Thursday. Beijing set this growth target in early March because it signaled the need to get back on track with President Xi Jinping’s long-term goals for the economy.

The country has also benefited from other good news recently. On Wednesday, the National Health Commission said China had administered more than 1.4 billion doses of the Covid-19 vaccine, which means the country has vaccinated half of its population with at least one dose.

And earlier this week, Beijing said exports jumped more than 30% in June compared to the same period in 2019, a sign that global demand for products made in China is strong.

“Resilient external demand could help offset some domestic pressures and support overall growth, even if strong export growth appears unsustainable,” Zhu said.

–Kristie Lu Stout and the Beijing office of CNN contributed to this report.

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