Beijing: The Chinese economy returned to growth in the second quarter, marking an important milestone in the global struggle to recover from the coronavirus pandemic.
Gross domestic product expanded 3.2 per cent in the three months to June from a year ago, reversing a 6.8 per cent decline in the first quarter. In the first-half, however, output is still down 1.6 per cent on the same period in 2019.
Having shut its economy in the first quarter to arrest the virus spread and managed so far to largely defeat subsequent outbreaks, China is claiming global leadership in dealing with the deadly disease. Yet a conservative stimulus approach has produced only a modest domestic recovery, and one that remains highly vulnerable to setbacks in external demand as shutdowns continue to hamper global activity.
An uneven return to growth
"The recovery in second quarter is strong, but also highly uneven" as the supply recovery is stronger than demand, and investment is stronger than consumption, according to Larry Hu, chief China economist at Macquarie Bank. "Looking ahead, while the growth momentum would slow inevitably, GDP growth could rebound to around 5 per cent on year in the second-half" of 2020.
Today's data showed the recovery is still largely industry-driven, while consumer sentiment is weaker than expected. A raft of measures have been rolled out since the pandemic to shore up the economy, including tax and fee cuts, cheaper loans, and increased fiscal spending. Stimulus has still fallen far short of the policies offered in developed economies, out of concern for debt buildup and financial stability.
"China's economy has gradually overcome the negative impact brought by the virus in the first-half, showing recovery momentum," Liu Aihua, NBS spokesperson, said in Beijing. "The recovery of the domestic economic recovery still faces pressure amid rising external challenges, as the coronavirus continues to impact the global economy,"
Watch the job numbers
A major headwind to the recovery is the level of unemployment created by the collapse in manufacturing in the first quarter. The surveyed unemployment rate doesn't capture the full impact, and tens of millions may still be out of work due to the pandemic.
Policymakers are also signaling that monetary and fiscal policy won't become much more supportive, as long as credit growth continues its upward trend.
"Not out of the woods" is how Helen Qiao, Bank of America Merrill Lynch's chief economist for Greater China, described today's numbers. Retail sales are clearly lagging the recovery in other parts of the economy.
"People still hold a fear against going out and traveling," and the service sector is continuing to feel pain, she said.