Analysts Expect China’s Economy Growth Increase in Q2

Analysts expect China to announce on Monday an increase in its economy’s growth in the second quarter, given that such an increase will not be real due to a weak base compared to last year, which was limited by the effects of the Covid-19 pandemic.

A year ago, China’s GDP showed one of the worst quarterly performance (+0.4% y/y) due to strict medical restrictions that led to lockdowns and frequent plant closures.

The lifting of these measures at the end of 2022 allowed the economy to restart in the first quarter and record growth of 4.5%, according to Agence France Presse.

Slow Recovery and Artificial Growth

But this recovery, which is still tottering in some sectors, has been slow, and between April and June, a group of 13 experts polled by Agence France Presse expected an increase of 7.1% per annum on average by 7.1%. gross domestic product of the world’s second economy.

An economist at the Institute of International Finance (IIF), an association of international banks and financial institutions, says the strong growth is “artificial.”

This is because the comparison is always made with the same period of the previous year, that is, with the second quarter of 2022, which was affected by the restrictions in the economic capital of Shanghai.

Quarterly growth data, also due on Monday, should be more realistic.

Curb Costs

The lifting of sanitary restrictions was accompanied by the return of the Chinese to shops, restaurants, and tourist spots. But Stuart Patterson, a researcher at the Heinrich Foundation, an independent body that monitors economic affairs, points out that they are “daunted by the thought of overspending” because of the sluggish job market and concerns about the future.

In May, one in five Chinese young people were unemployed, and a new record could be set on Monday when official data for June are released.

When demand falls, companies are reluctant to hire and “bid it on” that keeps activity low, says economist Harry Murphy Cruz at Moody’s ratings agency.

Because of this phenomenon, the specter of deflation looms; lower prices, which hurts the economy.

There was no inflation in June, and producer prices continued to fall, reflecting sluggish demand.

China’s economic growth has also been hit by the real estate crisis, which has long been the engine of the economy.

A large number of contractors are currently struggling to survive, fueling a crisis of confidence on the part of potential buyers and cutting prices.

Political Numbers

And Tovey Mason, an analyst at the Rabobank group, confirms that a decrease in home purchases logically leads to a decrease in the cost of its arrangement and an increase in family savings, which harms activity.

Analysts warn that geopolitical tensions with the US, the risk of a recession in major economies, and global inflation will also affect exports in the coming months.

This sector has historically been the main engine of growth in the country, which has long been called the “workshop of the world.”

According to customs, in June, exports showed the sharpest drop in three years (-12.4% y/y).

Despite the pressure on the economy, the government has set a target for the Asian giant to grow by about 5% this year.

This clearly political ratio, which should be treated with caution, is subject to scrutiny due to the weight of the country in the global economy.

Experts polled by Agence France Presse expect China to grow 5.3% this year, close to the International Monetary Fund’s 5.2% expectation, which had counted on China’s recovery in the spring to kick-start the global economy.

Growth in China hit 3% last year, far from the official target of 5.5%, and one of the weakest numbers in four decades.