China’s economy returned to growth in the second quarter, in one of the world’s earliest signs of recovery from the fallout of the coronavirus pandemic.

Gross domestic product grew 3.2 per cent in the three months to the end of June, compared with the same period last year, exceeding forecasts.

The figures follow the first annual decline in decades in the previous quarter, when China’s GDP fell by 6.8 per cent as the country struggled to deal with the impact of the Covid-19 crisis.

The return to growth coincided with a period when new reported cases of the virus had fallen sharply and greater state support for the industrial sector, even as consumption remained weak.

Liu Aihua, spokeswoman for the country’s National Statistics Bureau, said the figures “demonstrated a momentum of restorative growth and gradual recovery”. But she also pointed to “mounting external risks and challenges” as the virus continued to spread globally.

“We are confident on the economic recovery in the second half of this year,” she added.

Data from China, where coronavirus was first discovered, is being closely watched as economies around the world grapple with the effects of the crisis.

Despite local outbreaks of the virus, including last month in Beijing, new daily cases have typically remained in the tens per day in the second quarter as the pandemic has gathered pace in the US, Europe and Latin America.

In April, China eased lockdown measures in Wuhan, the original centre of the virus, but has continued to enforce strict rules on testing and closed off the country to most international flights.

China industrial production by month

Rising GDP in the second quarter was helped by strong industrial production, which increased 4.4 per cent compared with the same period a year earlier and rose in each of the past three months.

The Chinese state has supported industrial activity over recent months, in part through increasing the amount local governments can borrow for infrastructure projects. A rise in construction has helped boost the country’s steel output when production has shrunk in other big national producers.

“In China the story is very reliant on what is happening domestically,” said Louis Kuijs, head of Asia economics at Oxford Economics. “The momentum should be strong enough to make it quite unlikely [we] see another fall in GDP,” he added.

Retail sales fell by 3.9 per cent in the second quarter, signalling an uneven recovery and continued pressure on consumption. The unemployment rate in June was 5.7 per cent, a slight improvement on May’s figure of 5.9 per cent.

Marcella Chow, global market strategist at JPMorgan Asset Management, pointed to the high savings rates of domestic consumers over the course of the pandemic, but added that consumption could recover quickly if confidence returned.

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China reported positive trade data this week, which showed exports unexpectedly rising by 0.5 per cent in June compared with last year. But Ms Chow said that external demand for Chinese exports could remain weak as a result of lockdown measures in Europe and the US.

Stocks in Asia-Pacific markets retreated after the data were released.

The CSI 300 index of Shanghai- and Shenzhen-listed stocks was down 1.6 per cent and Hong Kong’s Hang Seng index fell by 1.2 per cent. In Japan, the Topix dipped 0.6 per cent and Australia’s S&P/ASX 200 was down 0.9, while the Kospi in South Korea shed 0.6 per cent.

“Markets DON’T like the unenthusiastic Chinese spenders,” Trinh Nguyen, senior economist for emerging Asia at Natixis, wrote on Twitter.

Additional reporting by Alice Woodhouse in Hong Kong

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