Gross domestic product expanded 6.3% in the second quarter from a year earlier, data from the National Bureau of Statistics showed on Monday, weaker than the median forecast of 7.1% by economists polled by Bloomberg.
Monthly indicators for the month of June showed a mixed picture, with a marked decline in retail sales and weakness in the real estate market, while industrial production improved.
Hao Zhou, chief economist of Guotai Junan Hong Kong Ltd., said: “This is a consumption-driven slowdown, which calls for policy support from the demand side. We think further interest rate cuts are to some extent justified.”
Beijing has set a moderate target of GDP growth of around 5% for the year, but it faces a barrage of economic challenges including the imminent prospect of deflation, falling exports and a real estate sector in crisis. The People’s Bank of China, which cut its key interest rate in June, refrained from easing policy on Monday, despite what many analysts expect moves in the coming months.
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China’s benchmark CSI 300 stock index was down 1% as of 10:57 am as Asian peers fell broadly. This was the first drop for the index in three sessions. The internal yuan weakened 0.3% at 7.1635 per dollar.
The National Bureau of Statistics said in a statement that while the economy has rebounded, “the global political and economic conditions are complex, and the foundation for the recovery and development of the domestic economy is still not solid yet.”
Xing Zhaopeng, chief China strategist at Australia & New Zealand Banking Group Ltd, said the data loss could prompt officials to accelerate fiscal spending to boost investment.
“There have been a lot of signals including conferences between the government, foreign investors and businessmen, which indicates that follow-up policy will come,” he said. “Fiscal spending will be the main focus in the next two weeks.”
Rising US interest rates and high levels of debt in the Chinese economy have limited the central bank’s scope to implement aggressive easing measures. Some economists also argue that weak business and consumer confidence has reduced the effectiveness of monetary stimulus, calling for fiscal policy to play a larger role in the economy.
Investors are looking forward to a potential meeting of the Communist Party’s decision-making body later in July to provide important clues about economic policies going forward. Xing said that financial measures may be announced before the Politburo meeting. DM