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China's economic growth decelerated to 4.7% in the second quarter of 2024, falling short of expectations and highlighting ongoing challenges in the world's second-largest economy. This slowdown, primarily driven by weak domestic demand and a persistent property slump, marks the lowest quarterly growth since early 2023.
The National Bureau of Statistics revealed that retail sales, a key indicator of consumer spending, grew by a mere 2% year-on-year in June. This tepid increase reflects diminished consumer confidence, influenced by reports of pay cuts across industries and low inflation rates. The urban unemployment rate remained relatively stable at 5%, but concerns about future earnings persist.
The real estate sector, a crucial economic driver and source of household wealth, continued its downward trend. New home prices in June experienced their steepest decline since 2015, dropping 4.5% year-on-year. Property investments for the first half of 2024 fell by 10.1% compared to the previous year.
Despite these challenges, some positive signs have emerged. More cities reported month-on-month increases in home prices in June compared to May, suggesting that recent support measures for the property sector may be starting to yield results. Notable gainers included Shanghai, Beijing, Hangzhou, and Nanjing.
Export performance has provided a buffer against weak domestic demand. June saw exports rise by 8.6% year-on-year, the fastest pace in 15 months. Analysts believe this trend may continue, potentially benefiting from interest rate cuts in major Western economies that could drive up demand for Chinese industrial goods.
The Communist Party leadership is currently convening in Beijing for a reform-focused conclave, closely watched for indications of how China plans to address its economic challenges. The government has set an ambitious 5% growth target for 2024, which some analysts consider achievable despite the headwinds.
Looking ahead, economists will be closely monitoring the upcoming Politburo meeting for signs of how the leadership intends to support economic growth in the near term. While meeting the 5% GDP target remains possible, it will likely prove more challenging in the second half of the year due to a higher comparative base from 2023.
