With China’s economy growing less than expected in Q2, calls have intensified for the government to expand stimulus measures to revive growth. Several investment banks cut their growth targets for China this year after today’s disappointing Q2 GDP report. The markets will look to a meeting later this month when China’s Politburo will decide on economic policies for the rest of the year. However, the Chinese government has hinted that any new stimulus measures will likely be targeted and limited in scale.
Q2 China GDP expanded at a +6.3% y/y pace, weaker than expectations of +7.1% y/y. The weaker-than-expected report prompted several investment banks to cut their China 2023 GDP forecasts, citing major weakness in the recovery and the Chinese government’s muted stimulus-response. Citigroup lowered its China 2023 GDP forecast to 5.0% from 5.5%, Morgan Stanley cut their China 2023 GDP forecast to 5.0% from 5.7%, and JPMorgan Chase lowered its China 2023 GDP estimate to 5.0% from 5.5%.
Other Chinese economic news today pointed to a slowdown in consumer spending, which has been the main driver of China’s economy this year. China’s June retail sales rose +3.1% y/y, weaker than expectations of +3.3% y/y and well below May’s +12.7% y/y increase. S&P Global Ratings said, “What we all expected for China was a consumption and service-led recovery. If that is sputtering, then there’s no engine left for the recovery.”
China’s property market remains in dire straits, which may limit the momentum of any economic rebound. Today, a unit of Dalian Wanda Group, among the few Chinese real estate conglomerates to stay afloat during the property crisis, told some creditors it is still raising funds to cover a $400 million note that matures July 2023. Also, investment in the property sector worsened in June, a sign of the ongoing pain in China’s housing market. China’s June property investment fell -7.9% year-to-date y/y, weaker than expectations of -7.5%. BNP Paribas SA said, “Property is the key to resolving the various current problems. The central bank needs to put a floor to the credit crisis among developers to help them survive.”
Some analysts say investors should trim their expectations for large stimulus measures from China. Nomura Holdings said, “We don’t think today’s data will push Beijing to step up a fast, cure-all package of stimulus measures,” adding that “it expects China to introduce a raft of supportive measures in the second half of this year, including two 10 bp rate cuts, although these measures may not turn things around. Also, HSBC Holdings Plc said that overly stimulating demand right now “may prove counter-productive by stoking the build-up in debt and accentuating some of the economy’s imbalances, such as its reliance on a vast housing construction sector.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
