(Bloomberg) -- The Chinese economy returned to growth in the second quarter, marking an important milestone in the global struggle to recover from the coronavirus pandemic.
Gross domestic product expanded 3.2% in the three months to June from a year ago, reversing a 6.8% decline in the first quarter and beating the median forecast of 2.4%. In the first half however, output is still down 1.6% on the same period in 2019.
Having shut its economy in the first quarter to arrest the virus spread and managed so far to largely defeat subsequent outbreaks, China is claiming global leadership in dealing with the deadly disease. Yet a conservative stimulus approach has produced only a modest economic recovery, and one that remains highly vulnerable to setbacks in external demand as shutdowns continue to hamper global activity.
Further details in Thursday’s data release:
- Industrial output rose 4.8% from a year earlier, matching the median estimate
- Retail sales shrank 1.8%, weaker than a projected 0.5% increase
- Fixed-asset investment shrank 3.1% in the first half of the year, versus a forecast drop of 3.3%
- The surveyed urban jobless rate fell to 5.7%
“China’s economy staged a sharp, but also highly uneven recovery in the second quarter,” economists at Macquarie Bank Ltd. led by Larry Hu wrote in a note before the data. “Given such a low base in 1Q, a V-shaped recovery is widely expected, but the slope is still a positive surprise.”
Today’s data showed the recovery is still largely industry-driven, while consumer sentiment remains weaker than expected. A raft of measures have been rolled out since the pandemic to shore up the economy, including tax and fee cuts, cheaper loans, and increased fiscal spending. Stimulus has still fallen far short of the policies offered in developed economies, out of concern for debt buildup and financial stability.
A major headwind to the recovery is the level of unemployment created by the collapse in manufacturing in the first quarter. The surveyed unemployment rate doesn’t capture the full impact, and tens of millions may still be out of work due to the pandemic.
Policy makers are also signaling that monetary and fiscal policy won’t become much more supportive, as long as credit growth continues its upward trend.
“The recovery is likely to slow down considerably from here,” economists at Commerzbank AG (OTC:CRZBY) led by Zhou Hao wrote in a note before the data. “This is because the marked deterioration in the labor market is putting the brakes on private consumption, and the high level of corporate debt is holding back investment.”
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