China is expected to grow its GDP by 2.2% to end the full-year with its slowest annual growth since 1976 if there is no dramatic recovery in consumer spending in the remaining months of the year.
A key reason for the weak consumer demand: national disposable income per capita dropped 1.3% in the first half of the year due to business shutdowns and job losses. Without the impetus from consumer spending, which accounts for over 60% of GDP, China's growth will have to rely on state-led spending which has remained tepid over the first half.
The 2.2% annual growth is the median projection among 42 analysts surveyed by Reuters. A previous Reuters' poll in April yielded a full-year estimated growth of 1.8%.
China's COVID-19 ravaged economy managed to grow 3.2% in the second quarter year-on-year, providing welcome improvement from the record 6.8% slump in Q1 as harsh measures mandating distancing and shutdowns paralyzed the economy.
In Q2, manufacturing and construction posted surprisingly quick recoveries due to the central government's massive infrastructure push and a rebound in home building. On the other hand, the services sector -- the hardest hit by the pandemic slowdown -- remains weak.
There have been scant signs of recovery in the hospitality, tourism and entertainment sectors. Prediction of a second wave of infections in the second half of this year is keeping the sector from staging even a modest recovery.
Massive demand for Chinese-made medical equipment and supplies being used in the global battle against COVID-19 is helping fuel the recovery of the country's exports.
Deteriorating diplomatic and economic relations between China and the U.S. are also crimping Chinese economic growth. The phase one trade deal signed by both countries January 15 has not fulfilled its promise of boosting trade. President Donald Trump has focused on assailing China on multiple fronts to distract attention away from his failure to handle the COVID-19 pandemic wracking the U.S.
"We still see growth uncertainties ahead from a bumpy and uneven reopening in other countries, a less favorable policy environment, and the loss of strong growth driver in consumption/services amid elevated uncertainty in the labor market," said an analysis from Bank of America Merrill Lynch.
Some economists still contend China's economy is experiencing a V-shaped recovery due to the improvement in Q2 GDP. What's clear, however, is China's recovery remains unbalanced since the supply side recovery is taking place much faster than the demand or consumption side.
Economists at Spanish multinational financial services company BBVA (Banco Bilbao Vizcaya Argentaria, S.A.) predict China's GDP growth will improve steadily to 5% year-on-year in Q3 and to 6% year-on-year in Q4.
"As a consequence, the full-year growth rate prediction remains at 2.2%, higher than the IMF's recent projection of 1%," said BBVA in its analysis of China's economy.
