China is set to announce impressive economic growth for the second quarter, fueled by comparisons to the previous year’s pandemic-induced lockdown. However, underlying data reveals a more complex reality, highlighting ongoing challenges for the country’s recovery. Economists surveyed by Bloomberg project that China’s gross domestic product (GDP) likely expanded by 7.1% year-over-year, a significant increase from the previous quarter’s 4.5%. However, when compared to the first quarter of 2023, the growth is expected to be a modest 0.8%.
The release of monthly data for industrial production, retail sales, and fixed investment on Monday is expected to indicate a slowdown in June. Retail sales growth, in particular, is anticipated to have declined from 12.7% in May to 3.3%. These figures are crucial for economists to gain a comprehensive understanding of China’s recovery. Unfortunately, the signs so far have been discouraging, with contracting manufacturing activity, the specter of deflation, declining export demand, and subdued holiday spending.
Amid these concerns, speculation has arisen that the People’s Bank of China (PBOC) will introduce additional stimulus measures following a surprise interest-rate cut in June. On Friday, officials hinted at the possibility of more support, although it is likely to be targeted toward specific sectors such as the property market and private businesses, rather than a broad-based approach. All economists surveyed by Bloomberg anticipate that the PBOC will maintain the rate on its one-year policy loans at 2.65% on Monday, with some expecting a small net injection of funds.
Bloomberg Economics notes that the PBOC aims to avoid excessive stimulus in a short period, having learned from past experiences where monetary easing led to unintended consequences. This cautious approach suggests that the upcoming measures will be carefully tailored to balance economic support with stability. In global economic news, the United Kingdom awaits a pivotal inflation figure that will provide insights into the potential size of the next interest rate adjustment. Retail sales will take the spotlight in the United States, while central bank decisions in countries such as Turkey and South Africa may generate significant market reactions.
Overall, China’s GDP growth for the second quarter will likely appear robust due to favorable year-over-year comparisons, but a closer look reveals a more challenging economic landscape. The nation’s recovery faces headwinds such as contracting manufacturing, deflation risks, weakening export demand, and cautious consumer spending. As economists await the PBOC’s decision on interest rates and stimulus measures, the focus remains on striking a delicate balance between supporting specific sectors and avoiding the potential side effects of excessive monetary easing.