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In Q2, China's economy grew at a slower pace than predicted

In Q2, China’s economy grew at a slower pace than predicted

China’s economy grew less than predicted in the second quarter, as sluggish manufacturing activity, increased raw material costs, and fresh COVID-19 outbreaks slowed the recovery.

GDP increased 7.9 percent year on year in the April-June quarter, according to official data released on Thursday, falling short of the 8.1 percent increase predicted by analysts polled by Reuters.

The year-on-year growth rate was highly skewed by the COVID-induced downturn in the first quarter of 2020, thus growth dropped dramatically from a record 18.3 percent rise in January-March. The pace of activity in June decreased from the previous month, but it still exceeded expectations.

“The statistics were somewhat below our and the market’s expectations (but) I think the momentum is quite robust,” said UOB economist Woei Chen Ho in Singapore. “Our larger worry is the uneven recovery that we’ve seen thus far, and for China, the rebound in domestic consumption is critical…retail sales last month were quite robust, which may assuage some fears.” _The Economic Times

While the world’s second-largest economy has recovered successfully from the COVID-19 crisis, supported by healthy export demand and policy assistance, recent statistics indicate a lack of momentum. Higher raw material costs, supply constraints, and environmental regulations are putting a damper on industry activity, while minor COVID-19 outbreaks have kept consumer spending under check. Investors are looking to see if the central bank is easing policy after the People’s Bank of China said last week that it will reduce the amount of cash that banks must maintain as reserves.

The action freed around 1 trillion yuan ($154.64 billion) in long-term liquidity to support the recovery, and it came as officials attempted to normalize policy following the economy’s robust recovery from the coronavirus crisis in order to control financial risks.

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The National Bureau of Statistics said that GDP increased 1.3 percent on a quarterly basis in the April-June period, narrowly surpassing forecasts for a 1.2 percent increase in a Reuters poll. The NBS revised the first-quarter growth rate from the fourth quarter of last year to 0.4 percent.

According to the NBS statistics, China’s industrial production increased 8.3 percent year on year in June, down from an 8.8 percent increase in May. The polled economists predicted a 7.8 percent year-on-year increase. In June, retail sales increased 12.1 percent year over year. Analysts polled predicted an 11.0 percent gain following a 12.4 percent increase in May.

“The domestic economic recovery is unequal,” said Liu Aihua, an official with the National Bureau of Statistics, at a briefing on Thursday. “We must also keep in mind that the worldwide epidemic is evolving, and there are several external instabilities and unknown elements,” she added._The Economic Times

Data released earlier this week indicated that China’s exports increased considerably faster than projected in June, but a customs official predicted that total trade growth will decrease in the second half of 2021, owing in part to COVID-19 pandemic uncertainty.

Economists polled by Reuters predicted 8.6 percent GDP growth in 2021, the greatest annual growth rate in a decade and well above the country’s declared objective of more than 6 percent growth. China was the only big economy to increase by 2.3 percent last year, avoiding a recession.

On Monday, Premier Li Keqiang underlined that China will not resort to flood-like stimuli. Nonetheless, analysts polled by Reuters predicted additional help this year, with a further reduction in the bank reserve requirement ratio (RRR) in the fourth quarter.

Fixed asset investment increased by 12.6 percent in the first six months of the year, compared to a forecasted 12.1 percent increase and a 15.4 percent increase in January-May.