China’s Q2 Growth Likely Dips to 4.5%, Chief Economists Say

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In the second quarter, China’s economy likely grew by approximately 4.5 percent, down from 5 percent in the first quarter, reflecting a shift from traditional to emerging growth drivers, according to the combined forecasts of leading chief economists. The projection for the entire year’s growth rate remains steady at 4.7 percent.

Upcoming economic reports for June, the second quarter, and the first half of the year are expected to be released on July 16 by the National Bureau of Statistics. The country’s economic outlook is increasingly influenced by the momentum of the artificial intelligence sector, noted Guan Tao of Bank of China International. He warned that if the AI boom cools or external circumstances change, economic stability could be threatened. He emphasized the importance for policymakers to implement buffers and prepare contingency plans to navigate potential uncertainties from both domestic and international factors.

The country’s economic policy strategy is expected to continue blending proactive fiscal measures with a moderately easy monetary policy. As growth pressures grew last quarter, fiscal stimulus may be intensified in the upcoming months, though significant cuts to reserve requirements or interest rates are unlikely at this stage, according to Wang Han from Industrial Securities.

The confidence index for economist outlooks, compiled by the research institute, declined slightly from 49.9 in June to 49.7 in July, remaining below the neutral threshold of 50 for two consecutive months. This indicates expectations that policy support will need to increase to stabilize growth during the second half of the year.

Fixed-asset investment is projected to have decreased by 4.7 percent during the first half of the year compared to the same period last year, slightly worse than the 4.1 percent drop seen in the first five months. Retail sales in June are expected to have risen by 0.2 percent year-over-year, an improvement from a 0.6 percent decline in May. Industrial added value is forecasted to have grown by 4.5 percent, consistent with the previous month.

Despite some positive signs, investment in fixed assets remains weak. The construction sector’s purchasing managers’ index stays below a critical threshold, and indicators such as new housing starts, sales, and developer financing remain negative. Private investor confidence remains fragile, as noted by Xie Yaxuan from China Merchants Securities. He added that the slight decline in fixed-asset investment during the first half of the year compared to earlier months is expected to persist, but sharp deterioration is unlikely thanks to ongoing investments financed through local government bonds and special treasury bonds.

Consumer spending, buoyed by a low base from the previous year, is anticipated to have rebounded in June, with retail sales possibly turning positive. Further improvements are expected in both food and beverage sectors and durable goods, according to Lu Zhengwei of Industrial Bank.

Industrial production in June was influenced by conflicting factors. While oil prices have declined, operating rates in the petrochemical sector remain subdued, indicating ongoing pressure from high energy costs. Conversely, the metallurgical and consumer-related industries showed signs of recovery, bolstered by increased demand driven by artificial intelligence development, explained Zhao Wei of Shenwan Hongyuan Securities.