It was a sharply smaller increase than the 4.8% it recorded in the previous quarter. This was also far less than the 1% growth that economists estimated in Reuters poll. On a quarterly basis, GDP shrank 2.6%.
The economy grew by 2.5% for the first half, which is well below the government’s 5.5% annual target. Beijing acknowledged Friday that it will be difficult for the country to achieve its GDP goals in this year’s first half.
“There are some challenges Fu Linghui, a spokesperson of the NBS, stated that we will achieve our economic growth target for the entire year at a Beijing press conference. However, he expects the economy to recover in the second half.
Fu spoke at a press conference Friday to say that the economy had taken an “unexpected and severe” hit by both domestic as well as external factors.
“The poor performance in the 2nd quarter reflects the shocks from Omicron and corresponding strict measures adopted in major urban areas,” Chaoping Zhu, a global market strategist for JP Morgan Asset Management, Shanghai.
Zhu indicated that there may be a downside to growth in the property industry.
Larry Hu, Macquarie Group’s chief China economist, stated that the latest data suggest that the GDP growth must accelerate to over 7% in half-time to achieve 5% annual growth.
He said, “It is impossible to do it without a significant escalation in policy stimulus levels from the current level.”
Property slump drags
Friday’s economic data contained some positive signs.
However, the huge real estate sector is still a major problem.
Macquarie Capital calculated based on government data showed that property investment declined 9.4% from a year prior to June. After a 32% drop in May, property sales by floor area fell 18% last month.
Hu said that slumping sales meant developers were facing a liquidity crunch.
“The property woes are causing rising social instability, as demonstrated by the recent mortgage boycott,” said he.
In desperate times, homebuyers in dozens of cities have stopped paying mortgages on unfinished houses over the past few days. As a result, a growing number project are being held up by a cash crunch. Evergrande, a giant developer, defaulted last year on its debt. Many other companies have sought protection from creditors.
Zhu of JP Morgan Asset management stated that there is a growing risk for banks’ financial health due to the unfinished homes.
“Decisive, effective regulatory actions must be taken in order to prevent the mortgage bankruptcy from becoming a systemic danger,” he stated.