THE EXPANSION OF the economy in the second quarter was greater than expected, but the overall GDP number masks an unevenness in the recovery from the first quarter’s Covid-19-induced slump. GDP grew by 3.2% year-on-year in the second quarter, The National Bureau of Statistics reports, but retail sales and private investment fell, and exports were little changed.
As this Bystander noted earlier, supply is recovering faster than demand. Industrial output rose by more than 4.0% in the quarter year-on-year but retail sales fell by a mirror amount. State-led investment and the infrastructure and real estate sectors led the 0.9% improvement in fixed investment. Private investment contracted.
Until demand catches up with supply — and that may require some stimulus fine-tuning both to put cash in consumers’ pockets and give them the confidence to go out and spend it, will keep the recovery modest.
The more modest it is at home, the slower and more gentle will be its spillover into the region and beyond — which in turn will weaken demand for China’s goods and services. Any assumptions of a V-shaped recovery for the global economy need to be jettisoned.