China is showing stronger signs of recovery from the severe COVID-19 economic paralysis, and reported a 3.2% growth year-on-year in second quarter GDP. On the other hand, the economy shrank by 1.6% in the first half of the year due to the record 6.8% contraction in Q1. China's full-year GDP growth was 6.1% in 2019.
The Q2 growth surprised Reuters economists that had predicted a more modest improvement of 2.5%. Q2 GDP growth was also higher than the median estimate of 2.9% growth in a Caixin survey of economists.
China's economy contracted a record 6.8% in Q1 year-on-year. This was China's first GDP decline since 1992 when official quarterly records began being kept.
Data from the National Bureau of Statistics (NBS) indicates signs of a strengthening economy. June foreign trade figures saw a rise in both imports and exports. Manufacturing activity also expanded compared to May.
"Generally speaking, the national economy overcame the adverse impact of the epidemic in the first half gradually and demonstrated a momentum of restorative growth and gradual recovery, further manifesting its development resilience and vitality," said NBS in a statement Thursday.
Some economists said the Q2 boost was also due to China easing lockdown measures earlier than other countries. They approved of central government measures to boost the economy. Among these moves were more fiscal spending and cuts in lending rates and banks' reserve requirements.
NBS data shows China's GDP contracted 1.6% year-on-year from January to June. It attributed the H1 slowdown to a 3.1% reduction in fixed-asset investment, a key driver of domestic demand. This key metric includes government-driven infrastructure spending. Fixed-asset investments fell 6.3% from January to May. Infrastructure investment picked-up in H1 and improved to 2.7% year-on-year from a 6.3% drop in from January to May.
A growing manufacturing output leads economists to believe China's GDP recovery might be sustainable until the end of this year. A recovery of 5% over the Q3 and Q4 is "definitely foreseeable," according to Bo Zhuang, chief China economist at TS Lombard. A pick-up in consumer spending is questionable, however.
There are, however, worrying signs that might slow down the predicted growth. Consumption still remains weak while retail sales fell 1.8% in June year-on-year. This unexpected contraction upset projections for a 0.3% improvement. Retail sales in May were 2.8% lower than May 2019.
Unemployment is still a huge problem. Urban unemployment stood at 5.9% in May and 6% in April. This figure was 5.3% in January.
"We are seeing an uneven recovery in China," said Johanna Chua, head of Asia economics and strategy at Citigroup. "Return to work, especially factory production, seems to be doing relatively much better,"
But the greatest risk of all facing China's economy is the resurrection of widespread COVID-19 infections in a second wave. NBS said given the continuous spread of the pandemic worldwide, and its huge impact on the global economy and mounting external risks and challenges, China's economic recovery is still under pressure.
