Strong Investment, Consumption Helps China’s Second Quarter GDP Growth Top Forecasts

Even though analysts expect slower growth over the rest of the year as policymakers seek to reduce financial risk, as industrial output and consumption picked up and investment remained strong, China’s economy grew faster than expected in the second quarter.

The National Bureau of Statistics said on Monday that noting the same rate as the first quarter, the economy grew 6.9 percent in the second quarter from a year earlier. The economy was expected to expand 6.8 percent in the April-June quarter by analysts polled by Reuters.

In line with expectations growth picked up to 1.7 percent from 1.3 percent in the first quarter on a quarterly basis.

A weak start for China stocks, which may have been linked to talk of tighter financial regulations, was helped to be offset by strength in retail sale and industrial output data.

As policy measures to rein in red-hot housing prices and a rapid build-up in debt take a greater toll on growth, many analysts expect the world’s second-largest economy to lose steam later in the year. But as exports recover and property construction remains strong, growth in China’s economy this year has beaten expectations.

“Overall, the economy continued to show steady progress in the first half…but international instability and uncertainties are still relatively large, and the domestic long-term buildup of structural imbalances remains,” the statistics bureau said in a statement with the data.

 

Pegged at slightly lower than last year’s actual 6.7 percent, which was the weakest pace in 26 years, the government is aiming for growth of around 6.5 percent in 2017.

While fixed-asset investment expanded 8.6 percent in the first six months of the year, both beating forecasts, China’s factory output grew 7.6 percent in June from a year earlier, the fastest pace in three months.

And noting the fastest pace since December 2015 and beating analysts’ expectations for a 10.6 percent rise, retail sales rose 11.0 percent in June from a year earlier.

As s they seek to contain a dangerous build-up in debt that has ballooned to 277 percent of GDP, an upturn in global demand for Chinese products could be a boon for the country’s leaders.

“(The new data) is encouraging for global growth as well because China is the second largest economy on the planet,” said Craig James, chief economist at Commonwealth Securities in Sydney.

“Based on this data, there is no need for easing and no need really for tightening either because inflationary pressures are very much contained. So I think the People’s Bank of China just continues to be watchful.”

As mills in the world’s top producer ramp up production due to fat profits from rallying prices, China’s steel output rose 5.7 percent in June to a record 73.23 million tonnes.

Weakness in other parts of economy in the second quarter could be offset by China’s exports and imports rose faster-than-expected in June from a year earlier, data last week showed.

After the economy grew 6.7 percent in 2016 – the weakest pace in 26 years, more wiggle room is theoretically offered for reforms after the economy grew 6.7 percent in 2016 by Beijing’s more modest growth target of around 6.5 percent for 2017.

According to a Reuters poll of analysts, keeping the pace of expansion slowing steadily in the third- and fourth-quarter, China’s economic growth is expected to cool further to 6.6 percent in 2017.

(Adapted from Reuters)

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