A series of recent downbeat indicators have dampened expectations for China’s economic performance in July and bode ill for the rest of 2024. The data also point to the need for more stimulus measures beyond covering up the problems in the world’s second-largest economy.
Calls to further step up the $19 trillion economic growth-boosting measures have haunted officials after a hoped-for post-pandemic recovery failed to materialize in 2023. However, the government is targeting economic growth of around 5 percent this year.
Recent data points to a rocky start to the second half of the year. Central bank data on Tuesday showed new bank lending in July plunged to a 15-year low. Other key indicators showed export growth slowing and factory activity slumping as manufacturers grapple with weak domestic demand.
China’s economy grew about 4.7 percent in the second quarter from a year earlier, slower than expected, as consumers remained reluctant to spend. And trade ties with key markets have become increasingly strained, suggesting a prolonged period of weakness is increasingly likely.
“Market consensus is moving to the left side of the ‘around 5 percent’ growth target, as the economy slowed in July and a strong plan to support the economy seems to be missing,” said Xu Tianchen, senior economist at the Economist Intelligence Unit, which has maintained China’s growth projection of 4.7 percent since March.
On Thursday (8/15), China will release a series of activity data. A number of economists surveyed by the poll Reuters expects retail sales to grow 2.6 percent year-on-year in July, compared with 2.0 percent year-on-year growth in June. Meanwhile, industrial output is expected to grow more slowly and investment growth to ease.
Officials will also release the latest data on new home prices, which fell at their fastest pace in nine years in June despite a raft of support measures aimed at rekindling buyer interest and stemming a prolonged property crisis.
Credit data this week showed household loans, mostly mortgages, contracted by 210 billion yuan ($33.3 billion) in July, compared with a 570.9 billion increase in June.
One of the main reasons people are not spending in China is that 70 percent of household wealth is held in real estate, a sector that has long been a major driver of growth.
Export
Exports, one of the few bright spots this year, have so far failed to fuel a broader economic recovery, in part because manufacturers have had to cut prices to find buyers overseas amid weak domestic demand.
And there are signs that global demand is slowing. An official survey of factory managers in July showed manufacturers received fewer export orders for a third month.
“Everything depends on exports,” said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis. “Exports are stagnant, (and) we’ve already seen Thailand announce tariffs, and of course Turkey, Europe and the United States.”
“If we see exports growing negatively, I think we need to lower our projection for 2024, maybe to 4.2 percent, something like that.” (ft/es)
