China’s economy rebounds in Q2, expands 3.2%

China’s economy rebounds in Q2, expands 3.2%

U.S. tensions, weak consumer demand and a spike in global COVID­19 cases, however, pose risks to the outlook

China’s economy returned to growth in the second quarter after a deep slump at the start of the year, but unexpected weakness in domestic consumption underscored the need for more policy support to bolster the recovery after the shock of the coronavirus crisis. Asian share markets and the Chinese yuan fell, partly reflecting the broad challenges facing the world’s secondlargest economy as it grapples with the double­whammy of the pandemic and heightened tensions with the United States over trade, technology and geopolitics. Gross domestic product (GDP) rose 3.2% in the second quarter from a year earlier, the National Bureau of Statistics said on Thursday, faster than the 2.5% forecast by analysts in a Reuters poll, as lockdown measures ended and policy makers ramped up stimulus to combat the virus­led downturn. The bounce was still the weakest expansion on record, and followed a steep 6.8% slump in the first quarter, the worst downturn since at least the early 1990s.

Policy support needed “Policy support is still needed despite recovering growth momentum,” said Betty Wang, ANZ bank’s senior China economist. “The possibility of resurgences in local COVID­19 cases, global economic uncertainty and the deteriorating China­U.S. relationship all pose downside risks to China’s H2 growth outlook,” Ms. Wang said. Those risks were partly reflected in separate retail data that showed Chinese consumers kept their wallets tightly shut, pointing to a bumpy outlook at home and overseas, as many countries

continue to grapple with the COVID­19 pandemic — led by surging infections in the U.S. Though June indicators and GDP numbers largely beat expectations, Rodrigo Catril, a foreign exchange strategist at NAB in Sydney, said they also revealed “the China consumer remains behind in terms of the recovery story.”

Consumer remains wary “It’s very much a story of government stimulus­led recovery, which is very much focused on the industrial side. The consumer remains very cautious. That cautiousness is something the market is looking at in terms of countries where the consumer plays a bigger role, so that’s obviously relevant for the U.S. as well.” Retail sales were down 1.8% on­year in June — the fifth straight month of decline and much worse than a predicted 0.3% growth, after a 2.8% drop in May. Domestic job losses have been one of the worries for consumers, as many businesses struggled to stay in the black. The rising tensions with the U.S. and the pandemic have added to structural issues that China has been facing, including demographic changes, over­investment, low industrial productivity and high debt levels. The government is expected to offer more support on top of measures already announced, including a fiscal spending boost, tax relief and cuts in lending rates and reserve requirements. But debt worries have kept a leash on China’s stimulus tap. Net fiscal stimulus unveiled so far this year amounted to just over 4 trillion yuan ($571.7 billion), much restrained compared with the spending burst in other major economies including the U.S. and Japan.