China's Economy Rebounds, Rising 3.2 Percent

China's economy returned to growth in the second-quarter after a deep slump at the start of the year, as lockdown measures ended and policymakers stepped up stimulus steps to combat the shock from the coronavirus crisis.

The world's second-largest economy was still not out of the woods, however, as consumption and investment remained in the doldrums, suggesting authorities will likely have to offer more support to strengthen the recovery.

Gross domestic product (GDP) rose 3.2 percent in the second-quarter from a year earlier, the National Bureau of Statistics said on Thursday, faster than the 2.5 percent forecast by analysts in a Reuters poll, but it is still the weakest expansion on record.

The bounce followed a steep 6.8 percent slump in the first quarter, the first such contraction since at least 1992 when quarterly GDP records began.

The GDP numbers are being closely watched around the world, especially as many countries continue to grapple with the Covid-19 pandemic even as China has largely managed to contain the outbreak and has begun to restart its economic engines.

"While in general it's fair to say that the numbers beat expectations, what the numbers also reveal is that we're seeing that the China consumer remains behind in terms of the recovery story," said Rodrigo Catril, a foreign exchange strategist at NAB in Sydney.

"It's very much a story of government stimulus-led recovery, which is very much focused on the industrial side. The consumer remains very cautious. That cautiousness is something the market is looking at in terms of countries where the consumer plays a bigger role, so that's obviously relevant for the U.S. as well."

The economy contracted 1.6 percent in the first six months from a year earlier, the data showed, underscoring the sweeping impact of the health crisis.

On a quarter-on-quarter basis, GDP jumped 11.5 percent in April-June, the NBS said, compared with expectations for a 9.6 percent rise and a 10 percent decline in the previous quarter.

China's economy, the first in the world to be jolted by the coronavirus pandemic, has been recovering slowly in the past two months, though the bounce from the virus-induced downturn has been uneven.

Rising coronavirus infections in some countries, including the United States, have overshadowed improved demand for Chinese exports while heavy domestic job losses and lingering health concerns have kept consumers cautious.

China's industrial output rose 4.8 percent in June from a year earlier, the data showed, quickening from a 4.4 percent rise in May. That marked the third straight month of growth for the vast sector, offering some relief to the economy as it tries to regain its footing.

But consumption and investment remain weak. Retail sales were down 1.8 percent on-year – the fifth straight month of decline and much worse than a predicted 0.3 percent growth, after a 2.8 percent drop in May.

Fixed asset investment fell 3.1 percent in the first half of the year from the same period in 2019, compared with a forecast 3.3 percent fall and a 6.3 percent decline in the first five months of the year.

But reflecting increased fiscal spending on big-ticket projects, the downturn in infrastructure investment eased, falling 2.7 percent in the first half from a year earlier, compared with a drop of 6.3 percent in the first five months. (Reuters)