China's GDP grew lower than expected 6.3% in the second quarter, stock market reacts

As China's COVID rebound story continues to loose its sparkle lately, its economy witnessed a lower than expected growth in the second quarter. China's economy grew at 6.3% at annual pace in the April-June quarter of the current financial year. 

In response to the negative news, many Chinese stocks tumbled after the release of the GDP numbers. China's GDP is expected to slow further in the coming months because of the given slack consumer demand in China and slump in demand for Chinese exports in other economies as their post-pandemic recoveries lose momentum.

The 6.3% growth in China’s gross domestic product from April to June outpaced a 4.5% rate of growth in the previous quarter, according to government data released Monday. In quarterly terms, the economy grew 0.8% compared to the first three months of the year.

China's stocks fell after the release of GDP numbers

After the release of data, China's blue-chip CSI 300 Index fell by 1.1%, while the Shanghai Composite Index declined 1.2% by the midday recess, reported Reuters.

The Hong Kong market remained close on the day due to the approaching Typhoon Talim. The released data also indicated that China's property sales between June and May made their largest ever monthly dive this year.

Other than the blue-chip index, energy companies also tumbled by 3% while shares in banks and consumer staples lost 1.9% and 1.1%, respectively.

China’s recovery is going from bad to worse

The still robust growth of China's economy growing just 0.4% a year earlier in April-June of 2022 amid strict lockdowns in Shanghai and other cities during COVID-19 outbreaks.

China is still recovering from the impact of the pandemic, said Fu Linghui, National Bureau of Statistics spokesman. at a news conference Monday. He also maintained that China can still meet the growth target for the year of about 5%.

On the other hand, analysts are not that much optimistic about the economy. The numbers are a “worrying result” for China’s economy, which has been struggling to gain momentum, said Moody’s Analytics economist Harry Murphy Cruise.

“China’s recovery is going from bad to worse,” he said. He said that after some support in the opening months of 2023, the pandemic hangover is still troubling China's economy. Government spending is also likely to affect real estate and construction, but he don't expect the move to make a big difference.

Marcella Chow, global market strategist at J.P. Morgan Asset Management mentions in a report that apart from more government spending, regulators can cut interest rates. “The weak economic readings suggest an urgency in escalating policy support so as to stabilize expectations,” Chow said.

In the first quarter, China managed to impress its investors and economists with its expected GDP results. The country grew by 4.5% in the first quarter of current financial year. The GDP number was the result of consumers who flocked to shopping malls and restaurants after nearly three years of “zero-COVID” restrictions were removed in late 2022.

The government's growth target of “around 5%” looks a distant dream that can only be achieved if the country maintains close to its current level of growth.

The country also witnesssed a decline in its export by 12.4% on a YoY basis in June. This was the result of faltering global demand after the rate cut by central banks in the US and Europe. There was some improvement in retail sales, but it was insufficient in pulling the economy out of its sombre state.

Industrial output in China also outnumbered analyst's expectations and rose by 4.4% in June compared to the same month a year earlier. Its fixed-asset investment grew by a still tepid 3.8% YoY for the first half of 2023.

(With inputs from AP and Reuters)