China’s economic recovery falters, investors consider further policy easing

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  • Post-COVID rebound has peaked, additional support may be needed
  • Retail sales higher than forecast, industrial production offer some relief
  • The sharp drop in automobile production weighs on industrial production
  • China’s all-important real estate market shows signs of cooling

BEIJING, July 15 (Reuters) – China’s economy grew slightly slower than expected in the second quarter, weighed down by rising raw material costs and new outbreaks of COVID-19, as it is expected to what policymakers need to do more to support the recovery.

Gross domestic product (GDP) grew 7.9% in the April-June quarter from a year earlier, official data showed on Thursday, missing expectations of an 8.1% increase in a Reuters poll of economists. Read more

Growth slowed considerably from a record expansion of 18.3% during the January-March period, when the year-on-year growth rate was heavily skewed by the COVID-induced crisis in the first quarter of 2020.

Retail sales and industrial production grew more slowly in June, the latter driven by a sharp decline in motor vehicle production, while NBS data also showed a cooling of the Chinese housing market, a key driver of the growth.

But June’s activity data has always beaten expectations, providing some relief to investors worried about a slowdown after the central bank announced a policy easing last week. Read more

“The numbers were slightly lower than our expectations and market expectations (but) I think the momentum is pretty strong,” said UOB economist Woei Chen Ho in Singapore.

“Our biggest concern is the patchy recovery we have seen so far and for China the recovery in domestic consumption is very important… retail sales this month have been pretty strong and that may allay some concerns. . “

As the world’s second-largest economy has rebounded strongly from the COVID-19 crisis, bolstered by strong export demand and political support, data released in recent months has suggested some slowing down.

Higher raw material costs, supply shortages and pollution controls weigh on industrial activity, while small outbreaks of COVID-19 have limited consumer spending. Read more

Investors are watching to see if the central bank adopts a looser policy after the People’s Bank of China (PBOC) announced last week that it would reduce the amount of liquidity banks are required to hold as reserves, just like others central banks are beginning or beginning to think about exiting the stimulus from the pandemic era. Read more

The second-quarter average growth in 2020 and 2021 was 5.5%, up slightly from the 5% average for the first quarter, according to the National Bureau of Statistics.

On a quarterly basis, GDP grew 1.3% in the April-June period, the SNB said, narrowly exceeding expectations of a 1.2% increase in the Reuters poll. The SNB revised downward growth in the first quarter from the fourth quarter of last year to 0.4%.

FLEXIBILITY OF THE POLICY?

The PBOC’s move, which freed up around 1,000 billion yuan ($ 154.64 billion) in long-term liquidity to support the recovery, comes even as policymakers sought to normalize their policies after the strong rebound economy after the coronavirus crisis to contain financial risks.

It highlights the challenges policymakers will face in rolling back pandemic-era stimulus measures as the coronavirus continues to spread around the world. Read more

“The national economic recovery is uneven,” Liu Aihua, an NBS official said at a briefing Thursday.

“We also need to see that the global epidemic continues to evolve, and that there are many external instabilities and uncertain factors,” she said.

Premier Li Keqiang reiterated Monday that China will not resort to flood-like stimulus measures.

Still, Reuters poll economists expected more support this year, predicting a further decline in banks’ reserve requirement ratio (RRR) in the fourth quarter.

Some market watchers say a cut in the country’s benchmark loan prime rate could be the next step, possibly as early as next week. Read more

“Based on the current situation, if policymakers do not act, the fourth quarter GDP figure may fall outside the reasonable range, as the last quarter’s data was brilliant,” said Xing Zhaopeng, senior Chinese strategist. at ANZ in Shanghai.

“I expect the government to roll out targeted easing measures.”

FACE WIND

China’s strong exports have been a key support to the country’s post-COVID recovery, but a customs official said this week that overall trade growth could slow in the second half of 2021, partly reflecting uncertainties over the COVID-19 pandemic. Read more

“Headwinds to growth are expected to intensify in the second half of the year,” Julian Evans-Pritchard, senior Chinese economist at Capital Economics said in a note.

“China’s COVID-19 export boom appears to have peaked and will slow down over the next few quarters as the rollout and reopening of vaccines will help normalize patterns of global consumption. “

New home prices rose in June at the slowest pace since April and real estate investment at its slowest pace this year, as government measures to cool a warm housing market further dampen growth. Read more

NBS data showed China’s industrial production rose 8.3% in June from a year ago, slowing from an 8.8% increase in May. Economists in the poll were expecting a 7.8% increase year-on-year.

Retail sales increased 12.1% from a year earlier in June. Analysts in the poll were expecting an 11.0% increase after rising 12.4% in May.

Economists in the Reuters poll expected an 8.6% GDP expansion in 2021, which would be the highest annual growth in a decade and well above the country’s official target for growth above. 6%. China was the only major economy to avoid a contraction last year, growing 2.3%. Read more

Capital investment rose 12.6% in the first six months of 2021 compared to the same period a year earlier, compared to an expected rise and fall of 12.1% from a jump of 15, 4% in January-May.

($ 1 = 6.4665 yuan)

Reporting by Kevin Yao and Gabriel Crossley; Additional reporting by Roxanne Liu; Editing by Ana Nicolaci da Costa and Kim Coghill

Our standards: Thomson Reuters Trust Principles.

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