China second quarter GDP growth slows to 27-year low, more stimulus expected

BEIJING (Reuters) – China’s financial growth slowed to 6.2% within the second quarter, its weakest tempo in a minimum of 27 years, as demand at residence and overseas faltered within the face of mounting U.S. commerce strain.

FILE PHOTO: Workers are seen at a manufacturing line manufacturing tyres at a manufacturing unit in Nantong, Jiangsu province, China April 28, 2019. REUTERS/Stringer/File Photo

While more upbeat June manufacturing unit output and retail gross sales provided indicators of enchancment, some analysts cautioned the positive aspects will not be sustainable, and anticipate Beijing will proceed to roll out more help measures in coming months.

China’s buying and selling companions and monetary markets are intently watching the well being of the world’s second-largest financial system because the Sino-U.S. commerce battle will get longer and costlier, fuelling worries of a world recession.

Monday’s growth information marked a lack of momentum for the financial system from the primary quarter’s 6.four%, amid expectations that Beijing wants to do more to enhance consumption and funding and restore enterprise confidence.

The April-June tempo was consistent with analysts’ expectations for the slowest for the reason that first quarter of 1992, the earliest quarterly information on document.

“China’s growth could slow to 6% to 6.1% in the second half,” mentioned Nie Wen, an economist at Hwabao Trust. That would check the decrease finish of Beijing’s 2019 goal vary of 6-6.5%.

Cutting banks’ reserve requirement ratios (RRR) “is still very likely as the authorities want to support the real economy in a long run,” he mentioned, predicting the financial system would proceed to gradual earlier than stabilizing round mid-2020.

China has already slashed RRR six occasions since early 2018 to unencumber more funds for lending and analysts polled by Reuters forecast two more cuts this quarter and subsequent.

Beijing has leaned largely on fiscal stimulus to underpin growth this yr, asserting huge tax cuts price practically 2 trillion yuan ($291 billion) and a quota of two.15 trillion yuan for particular bond issuance by native governments aimed toward boosting infrastructure building.

The financial system has been gradual to reply, nonetheless, and enterprise sentiment stays cautious.

Trade pressures have intensified since Washington sharply hiked tariffs on Chinese items in May. While the 2 sides have since agreed to resume commerce talks and maintain off on additional punitive motion, they continue to be at odds over important points wanted for an settlement.

Data on Friday confirmed China’s exports fell in June and its imports shrank more than expected, whereas an official survey confirmed factories have been shedding jobs on the quickest tempo for the reason that international disaster..

Premier Li Keqiang mentioned this month that China will make well timed use of cuts in banks’ reserve ratios and different financing instruments to help smaller corporations, whereas repeating a vow not to use “flood-like” stimulus.


A gentle string of weak financial information in current months and the sudden escalation within the U.S.-China commerce battle had sparked questions over whether or not more forceful easing could also be wanted to get the Chinese financial system again on steadier footing, together with some type of rate of interest cuts.

But June exercise information on Monday confirmed industrial manufacturing, retail gross sales and fixed-asset funding all beat analysts’ forecasts, suggesting that Beijing’s earlier growth-boosting efforts could also be beginning to have an impact.

Analysts additionally say room for more aggressive financial coverage easing is being restricted by fears of including to excessive debt ranges and structural dangers.

“Cutting the benchmark deposit and lending rates — the likelihood is very low. It’s more possible (that) they twist the market-oriented rates — cutting the interest rates of all those liquidity facilities also sends an important signal to the market,” mentioned Aidan Yao, senior Asia rising markets economist at AXA Investment Managers in Hong Kong.

“Fiscal policy is likely to be in the driving seat and monetary policy will act in a supportive role in the coming months.”

Industrial output climbed 6.three% from a yr earlier, information from the National Bureau of Statistics confirmed, selecting up from May’s 17-year low and handily beating a forecast for five.2% growth.

Daily output for crude metal and aluminum each rose to document ranges.

Retail gross sales jumped 9.eight% – the quickest clip since March 2018 – and confounding expectations for a slight pullback to eight.three%. Gains have been led by a 17.2% surge in automotive gross sales.

Some analysts, nonetheless, questioned the obvious restoration in each output and gross sales.

Capital Economics mentioned its in-house mannequin instructed slower industrial growth, whereas the soar in automotive gross sales could have been partly due to a one-off issue.

Car sellers in China are providing massive reductions to clients to scale back excessive inventories which have constructed up due to altering emission requirements. Motor car manufacturing truly fell 15.2%, the 11th month-to-month decline in a row, suggesting automakers don’t anticipate a sustained bounce in demand any time quickly.

“The monthly data were better than expected… (But) we are skeptical of this apparent recovery given broader evidence of weakness in factory activity,” mentioned Julian Evans-Pritchard, Senior China Economist at

“Looking ahead, we doubt that the data for June will mark the start of a turnaround.”

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Fixed-asset funding for the primary half of the yr rose 5.eight% from a yr earlier, in contrast with a 5.5% forecast and 5.6% within the first 5 months of the yr.

Real property funding, a serious growth driver for the world’s second-largest financial system, quickened in June. It rose 10.1% from a yr earlier, accelerating from a 9.5% achieve in May however nonetheless slower than in April, Reuters calculated.

Still, the financial system stays in a fancy state of affairs, with exterior uncertainties on the rise, the statistics bureau mentioned, including China will work to guarantee regular growth.

Additional reporting by Leng Cheng, Writing by Ryan Woo and Stella Qiu; Editing by Kim Coghill

Our Standards:The Thomson Reuters Trust Principles.

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