China’s second-quarter GDP growth has fallen short of expectations, with the real estate sector and consumer sentiment taking a hit. This has raised concerns about the need for further stimulus to sustain growth.
What Happened: Allianz‘s chief economic adviser, Mohamed El-Erian on X, has highlighted a trend in China’s economic growth for the second quarter.
“Despite surging exports, Q-2 GDP expanded by 4.7% (year-on-year), shy of the 5.1% consensus forecast and down from the prior quarter's 6.1% (revised from 6.6%) due to a struggling real estate sector and its impact on household sentiment,” El-Erian wrote.
China’s economy expanded by 4.7% in the second quarter, as per official data released on Monday. This growth rate, lower than the 5.1% predicted by analysts, reflects the slowest pace since the first quarter of 2023, Reuters reported.
The figures indicate a significant slowdown from the 5.3% growth in the previous quarter. The struggling real estate sector and its impact on consumer sentiment are cited as the primary reasons for the downturn.
Despite a surge in exports, domestic demand has been squeezed by the prolonged property crisis and job insecurity. This has led to growing expectations that Beijing will need to implement additional stimulus measures to maintain economic growth.
Chief economist for Greater China at ING, Lynn Song, commented, “Overall, the disappointing GDP data shows that the road to hitting the 5% growth target remains challenging.”
The government has set a target of achieving approximately 5.0% economic growth in 2024, a goal viewed as ambitious by many analysts who suggest it may necessitate additional stimulus measures.
Why It Matters: The Chinese economy’s performance has been under scrutiny amid various challenges. The real estate sector, a significant contributor to the country’s economic growth, has been struggling, as previously anticipated. This has prompted the government to introduce support measures, including a 300 billion yuan refinancing facility for affordable housing.
Despite these challenges, China’s significance in the global economy cannot be ignored. As JPMorgan Asia Pacific CEO Sjoerd Leenart emphasized, China accounts for 19% of the global GDP and 48% of Asia's GDP, making it a crucial player in the global economy.
The performance of the Chinese economy has also been impacted by the tech sector. A small number of technology companies, known as the "Magnificent Seven," have accounted for an outsized portion of the SPDR S&P 500 SPY gains in 2024.
The seven stocks are closing in on the size of the Chinese economy. The total market capitalization for the Magnificent 7 is over $16.6 trillion, while the projected GDP of China in 2024 is $18.5 trillion.
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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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