This was well below the 4.8% growth recorded in the previous quarter and well below the 1% growth estimated by economists in the Reuters poll. On a quarterly basis, GDP contracted by 2.6%.
In the first half of this year, the economy grew by 2.5%, well below the annual target of 5.5% set by the government. On Friday, Beijing acknowledged that meeting GDP targets this year will be difficult.
“There is a problem to meet our expected full-year economic growth target,” Fu Linghui, spokesman for NBS, said at a press conference in Beijing. But he expects the economy to recover in the second half of the year.
At a press conference on Friday, Fu said the economy had taken an “unexpected and severe” blow from internal and external factors.
The weak performance in the second quarter “reflected the significant turmoil caused by the Omicron outbreak and the corresponding stringent measures taken in major cities,” said Chaoping Zhu, Shanghai global markets strategist at JP Morgan Asset Management.
But the real estate sector may still pose a downside risk, Zhu said.
Larry Hu, Macquarie Group’s chief China economist, said the latest data suggests that GDP growth needs to pick up to more than 7% in the second half of the year to deliver 5% annual growth for the full year.
“This is impossible without a significant escalation of the stimulus policy from the current level,” he said.
Property decline drags on
There were several bright spots in Friday’s economic data.
But the vast real estate sector remains a major drag.
Real estate investment fell 9.4% in June from a year earlier, after falling 7.8% in May, according to Macquarie Capital calculations based on government data. Property sales by area fell 18% last month after falling 32% in May.
“Falling sales mean that developers are facing a lack of liquidity,” Hu said.
“The real estate trouble is causing growing social instability, as evidenced by the recent boycott of mortgages,” he added.
Over the past few days, desperate home buyers in dozens of cities have refused to pay mortgages for unfinished homes. The payment boycott comes as a growing number of projects have been delayed or halted due to a cash shortage that has left developer giant Evergrande defaulting on its obligations last year and several other companies seeking creditor protection.
Zhu of JP Morgan’s wealth management said the rising number of unfinished homes poses a big risk to banks’ financial health.
“Strong and effective regulatory action needs to be taken to prevent the mortgage boycott from becoming a systemic risk,” he said.