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ANALYST VIEWS ON CHINA'S SECOND-QUARTER GDP GROWTH

By Reuters
July 15, 20245:40 AM GMT+2Updated 8 days ago
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People walk past a construction site in Beijing's Central Business District
(CBD), China July 14, 2024. REUTERS/Tingshu Wang Purchase Licensing Rights,
opens new tab
July 15 (Reuters) - China's economy slowed in the second quarter, data showed on
Monday, as a protracted property downturn and job insecurity weighed on domestic
demand, keeping alive expectations Beijing will need to unleash more stimulus.
The world's second-largest economy grew 4.7% in April-June, official data
showed, its slowest since the first quarter of 2023 and missing a 5.1% analysts'
forecast in a Reuters poll. It was also down from the 5.3% expansion in the
previous quarter. KEY POINTS
Advertisement · Scroll to continue

* Q2 GDP +4.7% y/y (f'cast +5.1% y/y, Q1 +5.3%)
* Q2 GDP +0.7% q/q; (f'cast +1.1%, Jan-March Q1 +1.5% revised)
* 2024 GDP growth seen at 5.0%, 4.5% in 2025
* June industrial output +5.3% y/y (f'cast +5.0%, May +5.6%)
* June retail sales +2.0% y/y (f'cast +3.3%, May +3.7%)
* H1 fixed asset investment +3.9% y/y (f'cast +3.9%, Jan-May +4%)
* H1 property investment -10.1% y/y (Jan-May -10.1%)
MARKET REACTION:
Advertisement · Scroll to continue

Traders in China markets appeared to show scant response to the economic data,
with the blue-chip CSI 300 Index (.CSI300), opens new tab up 0.21% and the
Shanghai Composite Index (.SSEC), opens new tab edging 0.11% higher by the
midday break. China's onshore yuan weakened in morning deals.
COMMENTARY:


WOEI CHEN HO, ECONOMIST, UOB, SINGAPORE

"We wouldn't say the 5% full-year target is out of reach for now. But more
support will be necessary ... probably via monetary policy. There could be
further short-term rate cuts."



VASU MENON, MANAGING DIRECTOR OF INVESTMENT STRATEGY, OCBC, SINGAPORE

"The disappointing second-quarter economic growth in China, which is the first
set of quarterly data that is free of distortions by the pandemic, will add
pressure on the Chinese government to boost confidence. With the latest data,
markets are hoping that more significant measures could be announced during this
week's plenary session to help the limping economy and ailing property sector.
"The calls for greater focus on the economy will not go unheeded, but it is
unlikely that the Chinese government can do anything that will provide a quick
fix for the economy. Instead, the Third Plenum may focus more on long-term
structural issues, which means that investors hoping for a quick resolution of
China's woes may be disappointed.

"Uncertainty about the U.S. monetary policy and elections later this year also
poses challenges for policy makers in Beijing as they try to stabilize the
economy and property sector."


TORU NISHIHAMA, CHIEF ECONOMIST, DAI-ICHI LIFE RESEARCH INSTITUTE

"The main factors are firstly the weakness of domestic demand centred on
household and personal consumption. Also real estate investment, the details of
this are really pretty tough.
"The real estate issue is not something that can be resolved quickly, so I
cannot think that things will improve just by taking some measures. There are
some very good fields from the micro perspective such as individual companies or
science and technology. From a macro perspective, it's very tough."



TIANCHEN XU, ECONOMIST, THE ECONOMIST INTELLIGENCE UNIT, BEIJING

"The 4.7% growth is quite concerning because it comes off a low basis in Q2 2023
- remember how quickly the economy slows after the initial COVID-19 reopening.
Our current full-year growth forecast is at 4.7%, at the lower-end of the
'around 5%' target. Our view is that the additional borrowing by the central
government won't be enough to offset the deleveraging among local governments
and housing developers.
"We're also quite concerned by the downturn of mid- and high-end consumption - a
lot of discretionary spending such as jewellery and cars fell, probably as
recent deleveraging campaigns and crackdowns on high-pay sectors took a further
hit on job and income prospects.
"A bright spot is export, which is facilitated by cyclical upswings in
electronics, and trade that's driven by Chinese firms increasing investment
overseas."


ZHAOPENG XING, SENIOR CHINA STRATEGIST, ANZ, SHANGHAI

"The 5% GDP growth for 2024 is not a done deal. We maintain our full-year
forecast at 4.9%. The market will place a high hope on the third plenum this
week. Unfortunately, the structural-oriented party convention is unlikely to
unveil counter-cyclical measures. The outlook for H2 is unfavourable to China's
export-driven growth as trade protectionism grows.
"Among all monthly figures released today, the highlight is weak retail sales.
The 2% y/y is way below market consensus forecast of 3.4%. The figure does match
our visual inspection on the street. Household consumption remains very weak.
The 'replacement' schemes fail to lift spending. With employers slashing salary
and high youth unemployment, households will still be cautious going forward."


SHANE OLIVER, CHIEF ECONOMIST AT AMP, SYDNEY

"The GDP numbers are consistent with what we've been seeing from the partial
economic indicators, indicating a further slowing in Chinese growth. The bulk of
the main problem is consumer spending … So, this is suggesting downside risks to
Chinese GDP growth this year and probably also highlights the ongoing need for
more stimulus push.
"What China needs is more efforts to boost consumer spending and stop consumers
saving so much. And hopefully that's what we might see (from the third plenum).
You could argue today's economic data coming in on the soft side increases the
pressure on the third plenum to announce more decisive stimulus measures. But
you know we have been disappointed in the past, so investors don't want to get
their hopes up too much."


HARRY MURPHY CRUISE, ECONOMIST, MOODY'S ANALYTICS

"The remainder of 2024 will be defined by officials' success in arresting the
property market's falls and encouraging domestic spending. Both require
significant intervention. The four-day plenary session couldn't come soon
enough. Held just once every five years, the third plenum usually focuses on
economic planning and long-term reform.
"While the case for reform is high, it's unlikely to be a particularly exciting
affair. Big policy pivots can be taken as an admission of failure and a
sure-fire way to lose face. Instead, we expect a modest policy tweak that
expands high-tech manufacturing and delivers a sprinkling of support to housing
and households. We hope to be proven wrong by a larger swathe of policies being
announced this week to support the domestic economy."


MATT SIMPSON, SENIOR MARKET ANALYST, CITY INDEX, BRISBANE

"The numbers may not have been great relative to expectations, but perhaps
expectations were just too high. YTD, growth rose 5%, which hits Beijing's
growth target of 'around 5%'. And if there is to be any stimulus announced, the
CCP's Third Plenum would be the time to wheel them out. Although expectations to
unveil reforms adequate to provide growth of the good 'ole days is low."


ALVIN TAN, HEAD OF ASIA FX STRATEGY, RBC CAPITAL MARKETS, SINGAPORE

"On net, it's a negative outcome. It does show that the second-quarter growth
momentum appears to be weakening.
"The second-quarter momentum weakening kind of implies that we'll need more
support to get the economy to the 5% target for the whole year. And in
particular, we can see that the housing market continues to sag ... effectively,
the housing market and consumption side remains weak."


LYNN SONG, CHIEF ECONOMIST FOR GREATER CHINA, ING, HONG KONG

"The two big drags on GDP growth continue to be the property sector and
consumption. Property investment slumped -10.1% YoY through 1H24, and today's
data showed the price decline continues. A silver lining was that more cities
saw price increases, and we saw some stabilisation in some key tier 1 and 2
cities. On consumption, the 2% YoY growth in retail sales was the weakest level
since exiting pandemic restrictions, and showed weak consumer confidence
remaining a major headwind to the economic recovery.
"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 basic 'eat, drink and play'
theme consumption.
"Overall, the disappointing GDP data shows that the road to hitting the 5%
growth target remains challenging, and we will need to see further policy
support in the coming months if this goal is to be reached."


BACKGROUND

* China's economy has struggled to mount a strong and sustainable post-COVID
bounce, burdened by a protracted property downturn, mounting local government
debts and weak private-sector spending.
* The world's second-biggest economy is expected to grow at a 5% pace in 2024
year-on-year, according to a Reuters poll. Analysts then tip slower growth of
4.5% for 2025.
* The government is aiming for an economic growth of around 5% this year, a
target many analysts believe is ambitious and may require more stimulus, noting
that last year's growth rate of 5.2% was likely flattered by a comparison with a
COVID-hit 2022.
* China is drawing on infrastructure work - a well-used playbook - to help lift
the economy as consumers are wary of spending and businesses lack confidence to
expand.
* Fitch cut its outlook on China's sovereign credit rating to "negative" in
April, citing risks to public finances as Beijing channels more spending towards
infrastructure and high-tech manufacturing, amid a shift away from the property
sector.

Get the latest news and expert analysis about the state of the global economy
with Reuters Econ World. Sign up here.

Reporting by Reuters Asia bureaus; Compiled and edited by Sherry Jacob-Phillips

Our Standards: The Thomson Reuters Trust Principles., opens new tab

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