China’s economy has hit a roadblock in the second quarter of the year, with growth slowing down to 4.7%. This marks the slowest growth rate since the first quarter of 2023, falling short of the 5.1% forecast by analysts. The sluggish growth is attributed to a prolonged property downturn and job insecurity, which have dampened domestic demand and raised concerns about the need for further stimulus measures.
Analyst Commentary
According to Alvin Tan, the Head of Asia FX Strategy at RBC Capital Markets in Singapore, the second-quarter growth momentum is weakening, signaling the necessity for additional support to achieve the 5% growth target for the year. Specifically, the housing market remains a weak spot, impacting overall consumption and economic performance.
Lynn Song, Chief Economist for Greater China at ING in Hong Kong, points out that the property sector and consumption are the primary drags on GDP growth. Property investment has plummeted by 10.1% year-on-year in the first half of 2024, with ongoing price declines. Consumer confidence remains low, reflected in the meager 2% year-on-year growth in retail sales, indicating a challenging path to achieving the 5% growth target set by the government.
Challenges Faced by China’s Economy
China’s economy has been grappling with various obstacles, including a lingering property slump, rising local government debts, and weak private-sector spending. Analysts predict a modest 5% growth rate for 2024, followed by a slower 4.5% expansion in 2025. The government’s ambitious target of 5% growth this year may require additional stimulus measures, as last year’s growth rate of 5.2% was likely inflated due to the comparison with a pandemic-impacted 2022.
To stimulate economic activity, China has been relying on infrastructure projects, a strategy that has been effective in the past. However, consumer hesitancy to spend and business reluctance to expand pose significant challenges to achieving sustained growth. Fitch’s negative outlook on China’s sovereign credit rating in April underscores the risks associated with increased government spending on infrastructure and high-tech manufacturing, at the expense of the struggling property sector.
The recent economic data from China paints a bleak picture of the challenges faced by the country’s economy. The property sector, weak consumption, and sluggish growth rates underscore the urgent need for targeted policy interventions to spur economic recovery and achieve sustainable growth in the coming years.