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China’s GDP expanded at a slower-than-expected rate in the quarter ended June 2023, pointing to several challenges facing the nation’s economic growth and increasing concerns about its post-Covid-19 recovery.
As per government data, between April and June 2023, China’s GDP increased by 6.3% year-on-year, well below the expert projections of 7.1%. During the same period, the country’s GDP grew by 0.8% quarter on quarter, down from a 2.2% gain in the first three months of 2023. Additionally, between April to June, the nation saw its exports and imports shrink by 5.2% and 6.9%, respectively.
“China’s second quarter GDP data…came in below market expectations…The weaker than expected GDP numbers are likely to continue to cause concern for markets,” said ING.
Although the latest GDP growth rate is the fastest since the second quarter of 2021, experts say that China’s economic growth this year was magnified by a low base effect from last year’s Covid-19-induced lockdown. Looking ahead, China’s government has set a GDP target of 5% for 2023.
China’s GDP affected by a record rise in youth unemployment
All in all, China’s GDP grew by 5.5% in the first six months of 2023, driven by growth in the nation’s services and retail sector. From January to June 2023, China’s service sector grew by 6.4% year-on-year. Within the services sector, catering, information transmission, software and IT service industries expanded by 15.5%, 12.9%, and 10.1%, respectively.
Meanwhile, the retail sector, a major contributor to China’s GDP, saw an 8.2% year-on-year growth in the first half of 2023, with retail sales of consumer goods expanding by 8.1% in urban regions and 8.4% in rural areas. Also, the growth rate of retail sales decreased to 3.1% year over year in June 2023, from a high of 12.7% in May this year.
On the other hand, the national fixed asset investment (excluding rural households) saw a meagre year-on-year increase of 3.8% in the first half of this year, compared to 6.1% during the same period last year. Sector-wise, infrastructure investment rose by 7.2%, manufacturing investment rose by 6%, and real estate development investment fell by 7.9%.
In addition, industrial production in the country increased by 3.8% year-on-year between January and June 2023, compared to 0.4% during the same period last year. “In terms of three major categories, in the first half of the year, the added value of the mining industry increased by 1.7% year-on-year, the manufacturing industry increased by 4.2%, and the production and supply of electricity, heat, gas and water increased by 4.1%,” said China’s National Bureau of Statistics.
Furthermore, by the end of June 2023, the country’s unemployment rate for people aged 16 to 24 had reached a new high of 21.3%, while the overall unemployment rate remained at 5.3%.
“The weak economic readings suggest the urgency in escalating policy support to stabilise expectations. Ahead of the Politburo meeting at the end of this month, we believe the policy pendulum may swing back to short-term stabilisation measures, with emphasis on coordinated monetary and fiscal measures to boost expectations,” said Marcella Chow, Global Market Strategist at J.P. Morgan Asset Management.
