Hong Kong (CNN Business) - China's economy is growing again after its worst quarter in decades. While that could bode well for the post-coronavirus global recovery, the data suggests that people are still nervous about leaving their homes and spending money.
The world's second-largest economy grew 3.2% in the April-June period compared to the previous year, according to government statistics released Thursday. That's better than the 2.5% growth analysts polled by Refinitiv expected.
It also means that China avoided the recession. In the first quarter, the $ 14 trillion economy contracted by 6.8%, the worst single-quarter decline since China began publishing those figures in 1992. That was also the first time the country reported an economic contraction since 1976.
The rebound was widely expected. China, the original epicenter of the outbreak and the first country in the world to impose draconian measures to quell the virus, was the first major economy to reopen. She is now the first to emerge from the recession.
China's soon return to growth could bode well for the rest of the world.
The International Monetary Fund (IMF) said in June that the global economy could contract 4.9% in 2020, less than its forecast for April. The IMF at that time projected that the recovery would happen more gradually than previously expected.
But "the slowdown could be less severe than expected if economic normalization is progressing faster than currently expected in areas that have reopened," the agency said. He projected that China's economy will grow 1% this year, while the United States and Europe will see strong contractions.
An uneven recovery
While the magnitude of the recovery in China was stronger than many analysts expected, it was also "very uneven," according to Larry Hu, China's chief economist for Macquarie Group. For example. he noted that supply was stronger than demand.
Industrial production was a bright spot, growing 4.8% in June, its fastest pace this year, according to Refinitiv data. Manufacturing in high-tech sectors was particularly robust. Overall investment was also better than expected.
Retail sales, however, were a weak link, falling 1.8% in June compared to the previous year. Analysts surveyed by Refinitiv expected a return to growth.
The weakness in retail suggests that it is still difficult for Beijing to convince people to spend money again, even when the government tries to stimulate consumption. For example, authorities earlier this year began handing out cash to potential car buyers, along with billions of dollars in coupons to encourage people to buy goods and services, including smartphones and tourism activities.
People "won't leave their department and go to spend until they feel confident that the landscape is virus-free," wrote Stephen Innes, chief global markets strategist at AxiCorp, in a research note.
Beijing has admitted that motivating people to spend money remains a challenge, particularly as China is still trying to keep the coronavirus pandemic under control.
The government needs to "push even harder" in the second half of the year to help increase people's purchasing power, Liu Aihua, a spokesman for the National Bureau of Statistics, said at a press conference in Beijing on Thursday.
Markets in mainland China struggled after economic data was released. The benchmark Shanghai Composite Index (SHCOMP), which broke into a bull market last week, closed with a drop of 4.5%, wiping out almost all gains in the past two weeks. But it still remains in bullish territory, 20% more than its recent low in March.
Challenges ahead
China's recovery suggests that its economy is on track to grow this year, despite the significant recession in the first quarter. Oxford Economics predicts that the economy will grow 6% in the second half of the year and up to 2.5% for the whole of 2020, “backed by better sentiment after the successful containment of the covid-19 and a significant easing of fiscal policy. and monetary ”.
But there are challenges ahead.
"The darkest moment is behind us, but given the huge uncertainties of covid-19 and the global economy, it is too early to say that China is out of the woods," said Hu de Macquarie.
Nomura economists said China continues to face other problems, including the worst floods in decades and mounting tensions with the United States. There is also the continuing risk of another wave of coronavirus.
"The Chinese economy, along with the global economy, could be seriously affected again if a second wave of the pandemic breaks out in the winter," Nomura economists wrote in a research note.