China’s economy brakes sharply in Q2, global risks darken outlook

BEIJING, July 15 (Reuters) – China’s economic growth slowed sharply in the second quarter, highlighting the colossal toll on activity from widespread COVID lockdowns and pointing to persistent pressure over coming months from a darkening global outlook.

Friday’s frail data adds to fears of a global recession as policymakers jack up interest rates to curb soaring inflation, heaping more hardship on consumers and businesses worldwide as they grapple with challenges from the Ukraine war and supply chain disruptions.

Gross domestic product in the April-June quarter grew a tepid 0.4% from a year earlier, official data showed on Friday. That was the worst showing for the world’s second-biggest economy since the data series began in 1992, excluding a 6.9% contraction in the first quarter of 2020 due to the initial COVID shock.

It also missed forecast of a 1.0% gain in a Reuters poll of analysts and marked a sharp slowdown from 4.8% growth in the first quarter.

On a quarter-on-quarter basis, GDP fell 2.6% in the second quarter from the previous quarter, compared with expectations for a 1.5% decline and a revised 1.4% gain in the previous quarter.

“China’s economy has stood on the edge of falling into stagflation, although the worst is over as of the May-June period. You can rule out the possibility of a recession, or two straight quarters of contraction,” said Toru Nishihama, chief economist at Dai-ichi Life Research Institute in Tokyo.

“Given the tame growth, China’s government is likely to deploy economic stimulus measures from now on to rev up its flagging growth, but hurdles are high for PBOC to cut interest rates further as it would fan inflation which has been kept relatively low at present.”

Full or partial lockdowns were imposed in major centres across the country in March and April, including the commercial capital Shanghai, which saw a year-on-year contraction of 13.7% in GDP in the second quarter. Output in the capital Beijing shrank 2.9% year-on-year in the same quarter.

While many of those curbs have since been lifted, and June data offered signs of improvement, analysts do not expect a rapid economic recovery. China is sticking to its tough zero-COVID policy amid fresh flare-ups, the country’s property market is in a deep slump and the global outlook is darkening.

The imposition of new lockdowns in some cities and the arrival of the highly-contagious BA.5 variant have heightened concerns among businesses and consumers about a prolonged period of uncertainty. read more

For the first half of the year, GDP grew 2.5% from a year earlier.

Chinese stocks (.CSI300) rose briefly before turning down, while the yuan fell to a 2-month low on the weak GDP report.

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