That was well below the 4.8 percent increase in the previous quarter and well below the 1 percent growth that economists had expected in a Reuters poll. On a quarterly basis, GDP contracted 2.6%.
In the first half of this year, the economy expanded by 2.5%, well below the 5.5% annual target set by the government. Beijing admitted on Friday that achieving GDP targets this year will be difficult.
“There are challenges “To achieve our expected full-year economic growth target,” Fu Lingwei, a spokesman for the National Bureau of Statistics, said at a press conference in Beijing, but he expected the economy to rebound in the second half.
Fu said at a news conference on Friday that the economy had been hit “unexpectedly and severely” from both internal and external factors.
Chuping Chu, global market analyst at JPMorgan Asset Management in Shanghai, said the weak performance in the second quarter “reflects the significant shocks from the Omicron outbreak and the corresponding stringent measures adopted in major cities.”
But Chu said the real estate sector may still pose downside risks to growth.
Larry Hu, Macquarie Group’s chief China economist, said the latest data suggests GDP growth must accelerate to more than 7% in the second half to achieve 5% annual growth for the full year.
“This is impossible without a significant escalation of stimulus policy from the current level,” he said.
Property stagnation swings
There were some bright spots in the economic data on Friday.
But the vast real estate sector is still a major handicap.
Real estate investment fell 9.4% in June from a year ago, after falling 7.8% in May, according to Macquarie Capital calculations based on government data. Property sales by floor area fell 18% last month, after a 32% drop in May.
“The drop in sales means developers are facing a liquidity crunch,” Hu said.
He added that “the scourge of real estate is causing an escalation of social instability, as evidenced by the recent mortgage boycott.”
Over the past few days, desperate homebuyers in dozens of cities have refused to pay mortgages on unfinished homes. The repayment boycott comes as a growing number of projects are delayed or halted due to a liquidity crunch that has seen developer giant Evergrande default on its debts last year and many other companies are seeking protection from creditors.
Chu of JPMorgan Asset Management said the growing number of unfinished homes poses a significant risk to the financial health of banks.
“Decisive and effective regulatory measures must be taken to prevent the mortgage boycott from developing into systemic risks,” he said.