China’s economic recovery loses momentum

Rising expectations that policymakers will have to do more to support rebound

BEIJING: China’s economy grew slightly more slowly than expected in the second quarter, weighed down by higher raw material costs and new Covid-19 outbreaks, as expectations build that policymakers may have to do more to support the recovery.

Gross domestic product (GDP) expanded 7.9% in the April-June quarter from a year earlier, official data showed yesterday, missing expectations for a rise of 8.1% in a Reuters poll of economists.

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

Retail sales and industrial output grew more slowly in June, the latter dragged by a sharp fall in motor vehicle production, while

NBS data also showed a cooling in China’s housing market, a key engine of growth.

But June activity data still beat expectations, providing some relief to investors concerned about a slowdown after the central bank announced policy easing last week.

Investors are watching to see if the central bank is shifting to an easier policy stance after the People’s Bank of China (PBOC) announced last week it would cut the amount of cash that banks must hold as reserves, just as some other central banks begin or start thinking about exiting pandemic-era stimulusi.

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

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

“China‘s Covid-19 export boom appears to have peaked and will unwind over the coming quarters as vaccine rollouts and reopening help to normalise global consumption patterns.”

The NBS data showed China’s industrial output grew 8.3% in June from a year ago, slowing from a 8.8% rise in May. Economists in the poll had expected a 7.8% year-on-year rise.

Retail sales grew 12.1% from a year earlier in June. Analysts in the poll had expected a 11.0% increase after May’s 12.4% rise.

Economists in the Reuters poll expected a 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 higher than 6%. China was the only major economy to have avoided a contraction last year, expanding 2.3%.