China: GDP growth records slowest increase since Q1 2023 in the second quarter
GDP reading: GDP growth slowed to 4.7% on a year-on-year basis in the second quarter, down from 5.3% in the first quarter and marking worst reading since Q1 2023. On a seasonally-adjusted quarter-on-quarter basis, economic growth slowed notably to 0.7% in Q2, down from the previous quarter’s 1.5% increase and marking the worst reading since Q2 2022.
Drivers: The services sector grew 4.2% annually in the second quarter, decelerating from the first quarter’s 5.0% increase and marking the worst result since Q4 2022. In addition, the industrial sector lost steam, growing 5.6% in Q2 (Q1:+6.0% yoy). Agricultural sector growth improved moderately to 3.6% in Q2, following the 3.3% increase recorded in the previous quarter.
Looking at June data, retail sales growth was underwhelming at just 2.0% year on year—well below market expectations—while industrial production growth beat expectations with a 5.3% rise. Finally, fixed investment rose 3.9% in H1 as a whole, driven by government investment in the manufacturing sector. In addition, the property sector remained downbeat: housing sales, investment and prices all tumbled in the year to June.
Panelist insight: On the outlook, ANZ analysts said:
“The weak Q2 GDP (4.7% y/y) suggests the official target of 5% for 2024 is not a done deal. As H2 2023 constituted 53% of the annual GDP in 2023, China still needs to grow 4.9% in H2 2024 to achieve the target. The q/q decline from 1.5% in Q1 2024 to 0.7% in Q2 2024 is a concern.”
DBS Bank analysts said:
“Weak credit demand and conservative consumption sentiment signal the need for further policy easing. Mild inflation leaves room for rate cuts. We anticipate the PBOC will cut the Reserve Requirement Ratio (RRR) and Medium-term Lending Facility (MLF) as early as this quarter.”