China Q2 GDP growth slows, but June data shows economic resilience
Key takeaways
China Q2 GDP growth slowed to 4.3% year-on-year, but stronger June retail sales and industrial production signaled resilience in the Chinese economy.
China exports accelerated sharply in June, led by technology, autos and consumer goods, while rising IT imports pointed to a deepening AI infrastructure cycle.
Better-than-expected China economic data may give policymakers more flexibility on near-term stimulus as global macro risks continue to pressure growth.
China's Q2 growth slowed to 4.3% y/y from 5.0% in Q11, reflecting a widening divergence between resilient exports and a soft patch in the domestic demand market. These trends were widely expected from the already reported monthly April and May data though today’s print also revealed the June monthly data, which showed both export resilience and a rebound in domestic consumption.
Specifically, industrial production in June accelerated to 5.3% y/y from 4.5% in the prior month and retail sales also reversed a decline, posting a positive 1.0% y/y in June from the -0.6% in the prior month (Figure 1). Fixed-asset investment declined 5.7% in the first half of the year, reflecting renewed local government austerity measures on infrastructure investment. Property investment also missed expectations and fell 18% for the first six months of the year.
China’s export growth accelerated sharply in June, rising 27.0% y/y, above both May’s 19.4% y/y increase and consensus expectations of 19.0%.2 The June trade data shows that the robust export engine is starting to broaden. Tech remains the key driver, but autos and consumer goods are now adding incremental momentum, while surging IT imports point to a rapidly deepening AI infrastructure cycle.
Overall, I think China’s economy Q2 has shown resilience in the face of unanticipated disruptive forces. The country’s manufacturing and export sectors expanded despite intensifying global macro risks, such as the Middle East conflict, higher energy prices and bond yields. Many major economies including the US saw a dip in growth in Q2. I think the better-than-expected June retail sales and industrial production data gives policymakers more wiggle room to decide whether to implement more near-term stimulus or not.
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