Update: China’s Growth Dips to Lowest in Nearly Three Decades

China’s economy grew 6.2% year-on-year in the second quarter of 2019, the slowest rate in nearly three decades, despite an uptick in several economic indicators in June, official data showed Monday.

Growth in China’s gross domestic product (GDP) dipped to 6.2% in the second quarter from a 6.4% rise in the previous quarter, marking the lowest rate in available data dating back to the first quarter of 1992, according to data (link in Chinese) from the National Bureau of Statistics (NBS). The reading met the median forecast for the period by economists polled by Bloomberg.

In the first half of this year, China’s GDP grew 6.3% year-on-year, NBS data show.

“The current economic situation remains tough and complicated both at home and abroad with slowing global economic growth, increasing external uncertainties and imbalanced development at home,” NBS spokesperson Mao Shengyong said at a press conference (link in Chinese) on Monday. “Economic growth faces new downward pressure.”

Several major economic indicators improved in June. Fixed-asset investment, a key driver of domestic demand that includes infrastructure investment, increased 5.8% year-on-year in the first half of this year, NBS data show (link in Chinese). The reading was up slightly from 5.6% growth in the first five months and beat the Bloomberg poll of economists’ median forecast of 5.5% growth.

Government-driven infrastructure investment rose 4.1% year-on-year in the first half of this year, up from 4% growth in the first five months, the data showed.

Value-added industrial output, which measures production at factories, mines and utilities, rose 6.3% (link in Chinese) year-on-year in June, up from 5% growth in the previous month.

Retail sales, which include spending by governments, businesses and households, grew 9.8% (link in Chinese) year-on-year in June, up significantly from 8.6% growth in the month before. The reading marked the highest since March 2018 when the growth rate was 10.1% (link in Chinese).

“Any small improvement in recent data should be more like a blip than a trend,” Larry Hu and Irene Wu, economists with consulting firm Macquarie Capital Ltd., said in a note, citing the softening export and property sectors. They added that this June has three more working days than last June.

Investment in real estate development rose 10.9% from a year earlier in the first half of 2019, down from 11.2% growth in the first five months and marking the lowest rate since the January-to-February period, NBS data showed (link in Chinese).

Ideally, authorities should loosen monetary policy, including cutting the benchmark lending rates, “but it’s not going to happen, while policy makers are further tightening the money flows to property developers recently,” Hu and Wu said.

Earlier this month, China’s banking regulator ordered several trust companies to ensure no growth in the outstanding amount of their real estate financing business at least through this year’s third quarter, due to concerns about froth in the property market.

Economists with Nomura International (Hong Kong) Ltd. also said that June’s upbeat economic data will be short-lived. “We believe activity data could drop again in the next few months and assign a high probability to an escalation of US/China trade tensions despite the recent agreement to renew trade negotiations,” they said in a note.

In March, China’s government set this year’s annual growth target at 6% to 6.5%. “With GDP growth dipping towards the government’s 6% floor, government policy will remain pro-growth over the remainder of this year and into 2020,” Tom Rafferty, an economist with The Economist Intelligence Unit, said in a note.

Contact reporter Liu Jiefei (jiefeiliu@caixin.com)