That was significantly lower than the 4.8% increase recorded in the previous quarter and well below the 1% growth estimated by economists in a Reuters poll. On a quarterly basis, GDP fell by 2.6%.
In the first half of this year, the economy grew by 2.5%, well below the annual target of 5.5% set by the government. Beijing admitted on Friday that it would be difficult to meet its GDP targets this year.
“There are challenges to achieve our planned economic growth target for the whole year,” BES spokesperson Fu Linghui said at a press conference in Beijing. But he expected the economy to rebound in the second half.
More and more challenges
At Friday’s press conference, Fu said the economy had taken an “unexpected and severe” hit due to internal and external factors.
The poor performance in the second quarter “reflects the large shocks from the Omicron outbreak and corresponding stringent measures adopted in major cities,” said Chaoping Zhu, Shanghai-based global market strategist for JP Morgan Asset Management.
But the real estate sector can still pose a downside risk to growth, Zhu said.
Larry Hu, chief China economist for the Macquarie Group, said the latest data implies GDP growth needs to accelerate to more than 7% in the second half of the year to generate 5% annual growth for the whole. of the year.
“It’s impossible without a significant escalation of stimulus from the current level,” he said.
Property collapse drags
There were some clarifications in Friday’s economic data.
But the vast real estate sector remains a major obstacle.
Property investment fell 9.4% in June from a year ago, following a 7.8% plunge in May, according to Macquarie Capital calculations based on government data. Property sales by floor area fell 18% last month, following a 32% plunge in May.
“The drop in sales means developers are facing a cash crunch,” Hu said.
“The misfortune of property is at the root of growing social instability, as evidenced by the recent mortgage boycott,” he added.
Over the past few days, desperate homebuyers in dozens of cities have refused to pay mortgages on unfinished homes. The payments boycott comes as a growing number of projects have been delayed or stalled by a cash crunch that saw giant developer Evergrande default on debt last year and several other companies sought protection from creditors .
Zhu of JP Morgan Asset Management said the growing number of unfinished homes poses a significant risk to the financial health of banks.
“Decisive and effective regulatory action must be taken to prevent the mortgage boycott from becoming a systemic risk,” he said.