The world’s second-largest economy grew 3.2% in the April-June period compared to the previous year, according to government statistics released Thursday. That’s better than the 2.5% growth analysts polled by Refinitiv expected.
It also means that China avoided the recession. In the first quarter, the $ 14 trillion economy contracted by 6.8%, the worst single-quarter decline since China began publishing those figures in 1992. That was also the first time that China reported a contraction. economic since 1976.
China’s rapid return to growth could herald good news for the rest of the world.
The International Monetary Fund said in June that the global economy could contract 4.9% in 2020, less than its April forecast. The IMF at that time projected that the recovery would happen more gradually than previously expected.
But “the recession could be less severe than expected if economic normalization is progressing faster than currently expected in areas that have reopened,” the organization said. He projected that China’s economy will grow 1% this year, while the United States and Europe will see strong contractions.
An uneven recovery
While the magnitude of the recovery in China was stronger than many analysts expected, it was also “very uneven,” according to Larry Hu, China’s chief economist for Macquarie Group. He noted that supply was stronger than demand, for example.
Industrial production was a bright spot, growing 4.8% in June, its fastest pace this year, according to Refinitiv data. Manufacturing in high-tech sectors was particularly robust. General investment too It was better than expected.
However, retail sales were a weak link, falling 1.8% in June compared to the previous year. Analysts surveyed by Refinitiv expected a return to growth.
People “will not leave their apartment and will leave expenses until they feel confident that the landscape is virus free,” wrote Stephen Innes, chief global markets strategist at AxiCorp, in a research note.
Beijing has admitted that motivating people to spend money remains a challenge, especially since China is still trying to keep the coronavirus pandemic under control.
The government should “try even harder” in the second half of the year to help increase spending power among people, Liu Aihua, spokesman for the National Bureau of Statistics, said at a press conference in Beijing on Thursday.
Challenges ahead
China’s recovery suggests that its economy is on track to grow this year, despite the significant recession in the first quarter. Oxford Economics predicts that the economy will grow 6% in the second half of the year and by how as much as 2.5% for all of 2020, “underpinned by improved sentiment after the successful containment of Covid-19 and significant easing of fiscal and monetary policy.”
But there are challenges ahead.
“The darkest moment is behind us, but given the enormous uncertainties of Covid-19 and the global economy, it is too early to say that China is out of danger, “Hu de Macquarie said.
“The Chinese economy, along with the global economy, could be severely affected again if a second wave of the pandemic occurs [breaks] in winter, “Nomura economists wrote in a research note.
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