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China’s Q2 Economic Growth Falls Short Amid Weak Exports and Property Prices

China’s economy grew by 6.3% in the second quarter of the year compared to the same period last year, falling short of market expectations. The sluggish growth can be attributed to weak export demand and declining property prices, which have negatively impacted consumer confidence. Economists had anticipated a growth rate of 7.3%, highlighting the disparity between predictions and actual figures.

china GDP

In comparison to the first three months of 2023, China’s GDP accelerated from a 4.5% annual growth pace to a 6.3% growth rate in the April-June period. However, the quarter-on-quarter growth slowed to 0.8% from the previous 2.2% in the March quarter, although it surpassed the predicted 0.5% expansion.

China’s economic growth has been instrumental in supporting the global economy over the past three decades, creating significant demand. After extensive Covid-related lockdowns in the previous year, a rapid rebound was expected in 2023. The size of China’s economy, now second only to the United States, influences commodity prices and the export of various goods, from electric vehicles to renewable energy technology. Weaker domestic demand may lead to an increase in the export of these products.

Australia, a country heavily reliant on China’s economy, closely monitors these developments. Jim Chalmers, Australia’s top economic minister, expressed concerns about the precarious state of the global economy, with the US proving resilient, China displaying worrying signs, and Europe facing a recession.

The trade sector recorded weak figures, with a 6% decline in June and an 8.3% slump in exports, totaling just under 2 trillion yuan (approximately US$280 billion). Imports also decreased by 2.6%. In June alone, China’s retail sales grew by 3.1%, compared to a surge of 12.7% in May. Analysts had expected growth of 3.2%. These numbers, particularly the consumption figures, were disappointing.

Economists Louis Kuijs from S&P Global and Betty Wang from ANZ commented on the sluggish retail sales growth, indicating consumers’ reluctance to spend. Wang also highlighted the accumulation of household deposits, which reached a decade high, suggesting widespread pessimism among households due to a lack of recovery in the property sector and an uncertain job outlook.

The moderate growth figures are likely to increase expectations of further government stimulus to achieve the 5% growth target for 2023. The preliminary data shows that the economy grew 5.5% in the first six months of the year. NAB, an Australian bank, lowered its growth forecast for China in 2023 to 5.2% from the previous estimate of 5.6%, while keeping its forecasts for 2024 (4.5%) and 2025 (4.8%) unchanged.

In efforts to boost demand, China’s central bank has already reduced borrowing rates multiple times, as inflation remains low compared to other regions. Although the urban jobless rate remained unchanged at 5.2% in June, the unemployment rate among individuals aged 16 to 24 rose to a record 21.3%, marking the sixth consecutive monthly increase. Further policy measures, including population and fiscal policies, are expected to be announced after the politburo meeting later this month.

Additional data released on Monday indicated a continued decline in the value of newly constructed commercial residential buildings in almost all of China’s 70 largest cities. In Shenzhen, a major city neighboring Hong Kong, residential building values decreased by over 5% in the January-June period compared to the previous year.

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