China’s economy grew a lower than expected 6.3% in the second quarter, as post-COVID recovery slowed

China’s second-quarter economic growth fell short of expectations, expanding by 6.3% on an annual basis. Analysts had predicted a higher growth rate considering the sluggish growth experienced in the previous year. As the post-COVID recovery lost momentum, the world’s second-largest economy is expected to further decelerate in the coming months due to weakened consumer demand domestically and decreased demand for Chinese exports in other countries.

Government data released on Monday revealed that China’s GDP growth from April to June outpaced the 4.5% growth rate seen in the previous quarter. In quarterly terms, the economy grew by 0.8% compared to the first quarter of the year. However, this growth is primarily attributed to the low base effect, as the economy only grew by 0.4% during the same period last year when strict lockdowns were imposed due to major COVID-19 outbreaks in cities like Shanghai.

Analysts had anticipated growth of over 7% for the quarter ending in June. In the first quarter, China’s GDP surpassed expectations, expanding by 4.5% as consumers eagerly returned to shopping malls and restaurants following the removal of “zero-COVID” restrictions in late 2022.

The Chinese government had set a conservative growth target of “around 5%” for this year, which can only be achieved if GDP growth accelerates in the coming months.

Earlier data showed a 12.4% decline in exports in June compared to the previous year, reflecting weakened global demand following interest rate hikes by central banks in the United States and Europe to combat inflation. However, retail sales in June increased by 3.1% compared to the same period in 2022, indicating some level of consumer demand. Industrial production output, measuring activity in manufacturing, mining, and utilities sectors, surpassed analysts’ expectations with a 4.4% increase in June compared to the same month in the previous year.

While China’s policymakers currently face no inflationary pressures, they may need to address the risk of deflation or falling prices due to weak demand. In recent months, authorities have attempted to stimulate lending and spending with mixed success.

Fixed-asset investment, which includes spending on infrastructure and growth-driving projects, rose by a modest 3.8% in the first half of 2023 compared to the same period in 2022.

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