China’s economy grew by 7.9% in the second quarter of 2021 from the second quarter of 2020. That was a huge slowdown from the 18.3% year over year growth in the first quarter. No one had expected that growth surge from the end of pandemic lockdowns to be duplicated this quarter. Before the report economists surveyed by Reuters were looking for GDP to grow by 8.1% in the quarter.
So today’s report contains a slight miss on projections but it is be no means a worst case scenario, especially since other economic numbers were stronger than the GDP reading.
Retail sales and industrial output grew more slowly in June, but June activity still beat expectations. China’s industrial output grew 8.3% in June from a year ago, slowing from a 8.8% rise in May, but above expectations for a 7.8% year over year increase. Retail sales grew 12.1% from a year earlier in June. Retail sales climbed by a year over year 12.4% in May. Economists had expected a 11.0% increase.
Fixed asset investment grew 12.6% in the first six months of 2021 from the same period a year earlier, versus a forecast of 12.1% growth and down from a 15.4% jump in the January-May period.
Now attention shifts to how the People’s Bank of China will react. Last week the People’s Bank announced a larger than expected 50 basis points cut to the reserve ratio of cash that banks must hold as reserves. That released about 1 trillion yuan ($154.64 billion) in long-term liquidity.
Economists now expect another cut to the reserve ratio in the fourth quarter.
Before that expectations focus on a cut in China’s benchmark loan prime rate may be next with some speculating that the move could come as early as next week.
Economists project that China’s export-driven rebound is slowing, which makes it likely that without further central bank action, GDP growth could fall below government targets by the fourth quarter.
On todays GDP news most of China’s Internet giants continued a rally into a fourth day. Tencent Holding (TCEHY) was up 0.50% in New York as of 2 p.m. and Alibaba (BABA) had gained 1.31%.