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China's Economy Loses Momentum in Q2 Amidst Declining Exports and Weak Retail Sales

China's economy experienced a slowdown in the second quarter, with gross domestic product (GDP) expanding by 0.8 percent compared to the previous three months.

China's Economy Loses Momentum in Q2 Amidst Declining Exports and Weak Retail Sales

This growth was hampered by falling exports, weak retail sales, and a sluggish property sector, posing challenges for the world's second-largest economy and adding pressure on Beijing to implement stimulus measures. Although the growth rate exceeded the forecast of 0.5 percent, it was weaker than the 2.2 percent expansion in the first quarter. Year on year, the economy grew by 6.3 percent in the second quarter due to a low-base effect from the pandemic-induced lockdowns last year. However, this growth fell short of the predicted 7.3 percent.

The National Bureau of Statistics acknowledged that economic development had "fully returned to normal" in the first half of the year but cautioned that the international political and economic circumstances were complex, and the foundation for sustained recovery at home was not yet solid. The slowdown in China's economy has been further complicated by a decline in trade, with high interest rates in the West dampening consumer demand for Chinese goods.

The National Bureau of Statistics reported an 8.3 percent drop in exports in June compared to the previous year. Retail sales also experienced a slowdown, growing by only 3.1 percent in June compared to the same period last year, a significant decline from the 12.7 percent growth observed in May. The second quarter saw a record-high unemployment rate of 21.3 percent among individuals aged 16 to 24, while overall urban unemployment remained stable at 5.2 percent in June.

Economists highlighted the importance of retail sales and consumption as key drivers of China's growth this year. Carlos Casanova, senior Asia economist at Union Bancaire Privée, expressed disappointment with the June growth figure and emphasized the need for the government to improve private sector sentiment to address youth unemployment.

The real estate sector also faced challenges, with a 7.9 percent decline in investment in the first half of the year compared to the same period last year. Private investment and capital expenditure experienced a slowdown as well. To stimulate the economy, the government focused on infrastructure investment, which grew by 7.2 percent in the first half of the year.

Harry Murphy Cruise, economist at Moody's Analytics, noted that China's recovery was deteriorating due to cautious consumer spending, reduced business investment, and a fading property market recovery. He mentioned that the central bank had already implemented rate cuts, and Beijing extended tax breaks for electric vehicle sales. However, additional support in the property and construction sectors would be necessary. Cruise cautioned that despite these measures, 2023 was increasingly looking like a challenging year for China's economy.

Amidst these challenges, there were some positive indicators. Catering sales saw a significant increase of 21.4 percent in the first half of the year as consumers returned to restaurants. Additionally, the renewables sector experienced growth, with a 35 percent year-on-year increase in electric vehicle sales in the first half.

Economists are now turning their attention to the upcoming meeting of China's ruling politburo, where further support measures for the economy are expected to be discussed. The release of the data led to a sell-off in Chinese shares, with the CSI 300 index dropping by 1.1 percent in the morning, while the renminbi fell by 0.3 percent against the dollar.



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