While more upbeat June factory output and retail sales offered signs of improvement, some analysts cautioned the gains may not be sustainable, and expect Beijing will continue to roll out more support measures in coming months.
China’s trading partners and financial markets are closely watching the health of the world’s second-largest economy as the Sino-US trade war gets longer and costlier, fuelling worries of a global recession.
Monday’s growth data marked a loss of momentum for the economy from the first quarter’s 6.4%, adding to expectations that Beijing needs to do more to boost consumption and investment and restore business confidence. The April-June pace, in line with analysts’ expectations, was the slowest since the first quarter of 1992, the earliest quarterly data on record.
“China’s growth could slow to 6% to 6.1% in the second half," said Nie Wen, an economist at Hwabao Trust. That would test the lower end of Beijing’s 2019 target range of 6-6.5%.
Cutting banks’ reserve requirement ratios (RRR) “is still very likely as the authorities want to support the real economy in the long run," he said, predicting the economy would continue to slow before stabilizing around mid-2020.
China has already slashed RRR six times since early 2018 to free up more funds for lending, and analysts polled by Reuters forecast two more cuts by the end of this year.
Beijing has leaned largely on fiscal stimulus to underpin growth this year, announcing massive tax cuts worth nearly ¥2 trillion ($291 billion) and a quota of ¥2.15 trillion for special bond issuance by local governments aimed at boosting infrastructure construction.
The economy has been slow to respond, however, and business sentiment remains cautious.
Trade pressures have intensified since Washington sharply raised tariffs on Chinese goods in May. While the two sides have since agreed to resume trade talks and hold off on further punitive action, they remain at odds over significant issues needed for an agreement.
US President Donald Trump in a tweet linked China’s slowing growth to the US tariffs.
“The US tariffs are having a major effect on companies wanting to leave China for non-tariffed countries," Trump wrote. “These tariffs are paid for by China devaluing and pumping, not by the US taxpayer!"
Despite the trade dispute, Chinese net exports accounted for a striking 20.7% of the first-half GDP growth, as exporters had rushed to sell ahead of higher US tariffs and imports had weakened more sharply amid sagging domestic demand. For June, both exports and imports fell, and an official survey showed factories were shedding jobs at the fastest pace since the global crisis a decade ago