The Chinese economy is growing slower than expected in the second quarter, according to Reuters

By Kevin Yao and Gabriel Crossley

BEIJING (Reuters) – China’s economy grew more slowly than expected in the second quarter, slowing manufacturing activity, boosting higher raw material costs and new COVID-19 outbreaks.

Gross domestic product (GDP) rose 7.9% in the April-June quarter from a year earlier, official data showed on Thursday, with a forecast of an 8.1% rise in the Reuters economists ’survey.

Growth slowed sharply from a record 18.3% growth from January to March, with the year-on-year growth rate deteriorating sharply as a result of the decline caused by COVID in the first quarter of 2020.

June activity data slowed from the previous month but exceeded expectations.

“I think the numbers were below our expectation and the market’s expectation (but) I think it’s a pretty strong boost,” said Woei Chen Ho, an economist at UOB in Singapore.

“Our main concern is the uneven recovery we have seen so far and the recovery in domestic consumption is very important for China … retail sales have been quite strong this month and this may alleviate some of the concerns.”

Although the world’s second largest economy has experienced a rapid rebound from the COVID-19 crisis, driven by strong export demand and policy support, data from recent months have lost some momentum. Higher raw material costs, supply shortages and pollution controls are weighing on industrial activity, and small outbreaks of COVID-19 have kept consumers spending covered.

Investors are seeing whether the central bank is shifting to an easier policy stance after the People’s Bank of China announced last week that it would reduce the amount of money banks need to keep as a reserve.

The move released about 1 trillion yuan ($ 154.64 billion) to boost long-term liquidity recovery and when politicians sought to normalize policies, the economy had a strong recourse to financial risks as a result of the coronavirus crisis.

On a quarterly basis, GDP expanded 1.3% between April and June, the National Statistics Office said, according to the Reuters survey, the forecast was only exceeded by a 1.2% increase. The UN fell in the first quarter from 0.4% in the fourth quarter of last year.

NBS data also showed that Chinese industrial production grew by 8.3% in June than a year ago, up 8.8% in May. Survey economists expected a year-on-year increase of 7.8%.

Retail sales rose 12.1% in June from a year earlier. Survey analysts expected an 11.0% rise after a 12.4% rise in May.

“The internal economic recovery is uneven,” NBS official Liu Aihua said in a statement on Thursday.

“We also need to see that the global epidemic continues to evolve, and that there are many external instabilities and uncertain factors,” he said.

Earlier this week, Chinese exports grew much faster than expected in June, but a customs official said overall trade growth could slow in the second half of 2021, partly due to doubts about the COVID-19 pandemic.

Economists in the Reuters survey expected GDP growth of 8.6% in 2021, the highest annual growth in a decade and would be above official growth of more than 6% in the country. China was the only major economy to avoid a contraction last year, rising 2.3%.

Premier Li Keqiang reiterated on Monday that China would not use flood-like stimuli.

However, economists in the Reuters survey expected more support this year, predicting a further reduction in the ratio of bank reserve requirements (RRR) in the fourth quarter.

Investment in fixed assets rose by 12.6% in the first six months of the same period of the previous year, with a forecast increase of 12.1% and a fall of 15.4% from January to May.

($ 1 = 6.4665 yuan)