This photo taken on July 12, 2020 shows residents standing in front of a flooded pavilion on the Yangtze River in Wuhan in China’s central Hubei province. – Various parts of China have been hit by continuous downpours since June, with the damage adding pressure to a home economy already affected by the coronavirus pandemic. (STR / AFP photo) / China OUT (STR / AFP photo via Getty Images)
str / Agence France-Presse / Getty Images
Providing a bit of a home for global economies, China on Thursday reported better-than-expected growth figures as the country defended itself against a COVID-19-induced defeat.
But analyzing the data, analysts warned that there are difficulties below the surface and the probability of a more difficult second half.
First, the details: GDP in the second quarter expanded 3.2% from a year earlier, beating an analyst consensus estimate of 2%, and rebounding from a 6.8% decline in the first quarter. Compared to the first quarter, growth increased 11.5%, the National Statistics Office said, while the first half saw a 1.6% drop.
According to a breakdown by analysts at Goldman Sachs, industrial production rose 4.8% in June from a year earlier, beating the bank’s forecast of 5.2%, while retail sales fell 1.8%, down below a consensus estimate of growth of 0.5% and fixed Investment in assets fell 3.1%, slightly exceeding expectations for a fall of 3.3%.
Goldman said the overall hit on the data came down to four factors: The economy saw “much less drag” from the virus, which the government has more or less kept under control since the outbreak earlier this year; the political stance was favorable before June; Export growth was better than expected, and the agricultural and financial sectors experienced strong growth.
But Yu Song and a team of Goldman analysts said the downside of this solid information is that it “will reduce pressure for a more moderate policy.”
“We see greater downside risks to our 2H outlook as the policy started to become less favorable,” Goldman’s team said. “Non-medical exports, medium-low final consumption, core CPI inflation are some examples of areas of the economy that remain weak.”
While policymakers are “aware of the dangers of over-tightening,” policy is also more influenced by headline numbers, Song and the team said.
Stephen Innes, chief global markets strategist at AxiCorp, said that while China’s leading number on growth is “unequivocally positive” for risk sentiment, it is “what is under the hood that matters most.”
He said the data shows how a government can “normalize the supply side of the economy” with growth in industrial production, rather than demand with retail sales falling after the COVID-19 crash.
“No matter how much stimulus and fiscal sugar they try to attract consumers, they will not leave their department and go on spending until they feel confident that the landscape is virus free,” Innes said.
China’s CSI 300 Index 000300,
It fell 2.7% in trade in the late afternoon, which analysts say reflected in part the mixed data from China, but also the tensions between that country and the United States. The New York Times reported that Congress was considering a radical measure to ban members of the Chinese Communist Party.
Vaccine-fueled optimism fueled a recovery in global equities on Wednesday, with Dow futures YM00,
It was down 100 points and European equity futures also point to a weaker session.
.
