Chinese Q2 GDP growth beats forecasts, outlook for the year remains muted

Data released by the National Bureau of Statistics on Friday showed that China's second quarter Gross Domestic Product (GDP) growth beat estimates with a 6.7 percent expansion on-year in the three months through June. String of stimulus measures from the government and the central bank helped shore up demand. GDP was up 1.8 percent from the first quarter.

Data also showed that industrial output increased 6.2 percent year-on-year in June, accelerating from 6 percent growth in May, while fixed-asset investment climbed 9.0 percent y/y for the January-June period, compared with an increase of 9.6 percent in the year’s first five months. Retail sales grew 10.6 percent y/y in June, up from a 10 percent increase in May.

The industrial-production and retail figures were better than expected while the investment figure was below expectation. Growth in investment by private firms (which accounts for over 60 percent of total investment) fell to a new record low in the first half of the year as businesses retrench in the face of the sluggish economic outlook and weak exports. Record low private investment suggests future weakness could pressure the government to roll out more support measures.

In a bid to boost growth, China’s central bank has flushed funds through the financial system, ramped up infrastructure spending and reduced red tape and corporate taxes. The Finance Ministry reported Friday that government spending rose 19.9 percent year-over-year in June compared with a 17.6 percent increase in May.

“While there was a big pick-up in retail sales, the slowdown in fixed-asset investment is a worry. Given the slide in fixed-asset investment growth, I'm inclined to keep my forecast of slowing growth over the course of the year,” said Tim Condon, chief economist for Asia at ING in Singapore.