With tame growth, what stimulus measures might China deploy next?

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China May Deploy Economic Stimulus Measures Amidst Tame Growth

China's economy experienced a significant slowdown in the second quarter, prompting expectations of deployed economic stimulus measures. This slowdown, marked by a 0.4% year-on-year GDP growth, underscores the impact of stringent Covid-19 lockdowns and presents challenges for achieving the government's annual growth target of around 5.5%. While specific stimulus packages are not detailed, the People's Bank of China (PBOC) faces limitations in further interest rate cuts due to inflation concerns and potential capital outflows.
Economic Activity Significantly Impeded by Lockdowns

The second quarter saw China's Gross Domestic Product grow by only 0.4% compared to the previous year, a stark deceleration from the 4.8% growth recorded in the first quarter. This frail performance was largely attributed to full or partial lockdowns implemented in major cities such as Shanghai and Beijing during March and April. Shanghai, a key commercial hub, experienced a 13.7% contraction in GDP during the second quarter, while Beijing's output shrank by 2.9% year-on-year. On a quarter-on-quarter basis, GDP fell by 2.6% in the second quarter.
Signs of Recovery in June Data Amidst Persistent Challenges

Despite the overall slowdown, June data indicated some signs of economic improvement. Industrial output increased by 3.9% year-on-year in June, a notable acceleration from May's 0.7% growth. Fixed asset investment also demonstrated resilience, growing by 6.1% in the first six months of the year. Retail sales saw a positive uptick, rising by 3.1% year-on-year in June, marking the quickest growth in four months following the lifting of Shanghai's lockdown.
Labour Market Shows Mixed Signals

The employment situation presented a mixed picture. The nationwide survey-based jobless rate decreased to 5.5% in June, down from 5.9% in May. However, youth unemployment reached a record high of 19.3% in June, highlighting persistent challenges for younger demographics entering the workforce.
Property Sector Continues to Contract

China's property market remained a significant drag on economic performance. Home price growth stalled in June on a monthly basis, and property investment contracted for the fourth consecutive month. Property sales extended their decline, falling by a substantial 18.3%. This downturn is further pressured by homebuyers halting mortgage payments on unfinished pre-sold homes.

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With tame growth, what stimulus measures might China deploy next?

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