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4 Minute Read by * China’s GDP increased by 7.9% y/y in Q2, compared to +18.3% in Q1 (Reuters poll +8.1%). * June industrial output increased by 8.3% y/y, compared to +8.8% in May (poll +7.8%). * June retail sales increased by 12.1 percent year over year, compared to 12.4 percent in May (poll +11.0 percent). (Reuters) – BEIJING, July 15 – Slowing manufacturing activity, increasing raw material costs, and fresh COVID-19 outbreaks all weighed on China’s economic growth in the second quarter, which was down from a record high in the first three months of the year. Official data showed on Thursday that gross domestic product (GDP) increased 7.9% year on year in the April-June quarter, falling short of economists’ expectations of an increase of 8.1 percent in a Reuters poll. The year-on-year growth rate was heavily skewed by the COVID-induced slump in the first quarter of 2020, so growth slowed significantly from a record 18.3 percent expansion in January-March. The pace of activity slowed in June compared to the previous month, but it still exceeded expectations. While the world’s second-largest economy has made a strong recovery from the COVID-19 crisis, buoyed by strong export demand and policy support, recent data suggest a slowdown. Industrial activity is being weighed down by higher raw material costs, supply shortages, and pollution controls, while small COVID-19 outbreaks have kept consumer spending in check. Investors are waiting to see if the central bank is loosening its stance as GDP slows, especially after the People’s Bank of China stated last week that it will reduce the amount of cash banks must retain as reserves. To help the recovery, the move released about 1 trillion yuan ($154.64 billion) in long-term liquidity. The National Bureau of Statistics said that GDP increased 1.3 percent on a quarterly basis in April-June, slightly exceeding estimates of a 1.2 percent increase in a Reuters poll. The economy expanded by 0.4 percent in the first quarter of this year, compared to the fourth quarter of the previous year. China’s industrial output increased 8.3 percent year over year in June, down from 8.8 percent in May, according to NBS data. Economists polled predicted a 7.8% increase year over year. In June, retail sales increased by 12.1% over the previous year. After a 12.4 percent gain in May, analysts in the poll predicted an 11.0 percent growth in June. China’s exports expanded far faster than predicted in June, according to data released earlier this week, but a customs official warned that total trade growth could drop in the second half of 2021, owing in part to concerns about the COVID-19 epidemic. In a Reuters poll, economists predicted an 8.6% increase in GDP in 2021, which would be the greatest annual growth in a decade and well over the country’s official aim of more than 6%. China was the only big economy to grow by 2.3 percent last year, avoiding a decline. On Monday, Premier Li Keqiang underlined that China would not use flood-like stimulus. Still, economists polled by Reuters expected more help this year, with a fourth-quarter reduction in the bank reserve requirement ratio (RRR) expected. Fixed asset investment increased by 12.6 percent in the first half of the year, compared to the same time a year ago, compared to a forecasted 12.1 percent increase and a 15.4 percent increase in January-May. (1 US dollar = 6.4665 Chinese yuan) (Kevin Yao and Gabriel Crossley contributed reporting; Roxanne Liu contributed further reporting; Ana Nicolaci da Costa edited the piece.)/nRead More

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