‘Artificially high’ growth predicted for China in Q2: survey

A year ago, with restrictions such as sudden lockdowns, travel curbs and factory shutdowns the norm, China posted 0.4% on-year growth, one of its lowest quarterly readings in recent years.

This year, an average of predictions from a group of 13 experts interviewed by AFP suggested the economy expanded 7.1% in April-June.

But this figure is “artificially high because of the low base” in 2022, said Gene Ma from the Institute of International Finance.

The same period last year notably included a lockdown in Shanghai that saw the financial capital of 25 million people completely closed off for two months.

The quarter-on-quarter growth figures, which will also be released on Monday, should give a more realistic view of the world’s second largest economy.

In the first three months of this year, it grew 4.5% on-year, reflecting a resurgence in activity after the abrupt end of the zero-Covid policy in December.

But the recovery, which has been slow to take hold in some sectors, appears to already be running out of steam.

‘Afraid to open wallets’

Despite the post-pandemic reopening, a sluggish job market and general uncertainty over the future mean consumer confidence is at a low.

“From holiday travel to shopping for cars and homes, the macroeconomic data shows Chinese people are now just afraid to open their wallets too widely,” said the independent Hinrich Foundation’s Stewart Paterson.

In May, one in five young Chinese were unemployed, according to official data, a record that could be broken again on Monday when June figures are announced.

Low demand means companies are hesitating to hire, taking a “wait-and-see” attitude before expanding operations, said Harry Murphy Cruise, an economist at rating agency Moody’s.

Memories of 2022’s repeated lockdowns and suddenly changing policy shifts were adding to their hesitancy, he said.

“Unfortunately… a revival in business activity is needed for broader demand to lift. That stalemate is keeping business activity weak,” he added.

That in turn raises the spectre of deflation, a decrease in general prices, which would further add to China’s economic woes.

Inflation was flat last month, while producer prices sank more than expected, a further sign of weak demand.

Levers of growth

Growth is already being hampered by a crisis in the real estate sector.

Once a driving force behind the economy, many developers are now fighting for their survival, exacerbating a crisis of confidence among potential buyers.

Fewer house purchases logically means less spending on related goods like furnishings, and suggests higher saving ratios too — all of which further drive down activity, pointed out Rabobank’s Teeuwe Mevissen.

Geopolitical tensions with the United States, coupled with a global economic downturn and worldwide inflation will also have weighed on exports over the past few months, experts predicted.

This is traditionally a crucial lever of growth for a country that for decades was known as “the world’s factory”.

In June, exports dived 12.4%, their biggest decline in three years, according to the customs figures.

Authorities are coming under increasing pressure to step in with stimulus, but other than a few small interest rate cuts and pledges of action, there has been little of substance out of Beijing.

The government has set a growth target of around 5.0% for the whole of 2023.

The experts interviewed by AFP expect China to grow 5.3% this year, in line with the International Monetary Fund’s projection of 5.2%.

Last year, the economy expanded 3.0%, well short of the official target of 5.5%, and one of the lowest rates in four decades.