China's 7% Q2 GDP growth beats forecast

news
16 July 2015

The Chinese economy has posted a 7-per cent growth in the second quarter compared to a year ago quarter, beating market predictions of a 6.8-per cent expansion and demonstrating that the world's second-largest economy is on a stable path.

The growth reported by the country's National Bureau of Statistics (NBS) yesterday is in line with the government forecast of 7-per cent GDP growth in 2015.

The Q2 GDP growth is unchanged from the first quarter, and the lowest since the 2009 global financial crisis when economic growth fell to 6.6 per cent. The country posted a GDP growth of 7.4 per cent in 2014, after registering a 7.7 per cent in the previous year.

The GDP has hit 29.7 trillion yuan ($4.9 trillion) in the first half of the year, according to NBS data.

The Chinese prime minister Li Keqiang said that the economy which was on a slowdown has stabilised and he vowed to continue with financial reforms and tax breaks.

In a meeting with the Chinese state council, Li said China would boost measures to facilitate trade, which would include maintaining the yuan exchange rate at reasonable level and encourage more trade settlements in the local currency.

More foreign exchange reserves would be directed to loans that cover a broader scope, to stabilise and expand domestic companies' debt financing, a state council statement said.

While the latest figure indicates that the government's measures over the past few months to put a break on the economic slowdown is yielding results, economists call for more action to place the economy in a stable growth path amid high volatility in the stock market.

Recently, the government has taken a series steps to arrest an unprecedented crash in the Chinese stock market since mid-June and boost investor confidence.

The bench mark Shanghai composite index has fallen by over a quarter from its seven-year peak of 5,166 on 12 June.

The central bank has cut interest rates four times in the past eight months.

The country's economy has stayed "in the proper range" in the first half as major economic indicators gradually recovered, indicating stabilisation and improvement, NBS said.

International trade is on a decline, well below the government targets, weighing down on growth.

Total trade fell 6.9 per cent to 11.5 trillion yuan ($1.9 trillion) in the first half compared to last year.

HSBC research said both GDP growth and June economic activity data were largely above forecasts, driven by faster growth in the services sector, infrastructure investment and property sales.

Industrial output grew 6.3 per cent in the first half compared to last year while fixed asset investment increased by 11.4 per cent. Retail sales also posted strong growth of 10.4 per cent and property investment grew 4.6 per cent.

The largest growth driver appears to be the services sector that grew 8.4 percent in the second quarter up from 7.9 percent in Q1, said HSBC.

HSBC expects another 25 basis points rate cut and 200 points reserve ratio cut in the second half.

For the full year, the bank predicts GDP growth of 7.1 per cent, slightly above the government forecast.

"The improvement in both investment and industrial output growth is still tentative and relatively modest. In order to strengthen and sustain the recovery, more policy easing measures are still needed and likely in the second half of 2015," HSBC said.





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