Chinese economy bounces back in second quarter

China’s economy bounced back in the second quarter after taking a hit from the coronavirus pandemic, according to figures released by the National Bureau of Statistics on Thursday.

Gross domestic product grew 3.2% year-on-year following a 6.8% contraction in the first quarter, beating expectations for 2.5% growth. The first quarter contraction was the worst since quarterly GDP records began.

In seasonally adjusted terms, GDP rose 11.5% quarter-on-quarter following a 10% decline the first quarter, taking GDP back above the pre-coronavirus high hit in the fourth quarter of last year.

"This recovery was led by industry and construction, where output in Q2 was more than 2% above pre-virus highs. The improvement has been slower in the service sector, where output remains around 1% below pre-virus levels," said Capital Economics.

Industrial production rose 4.8% year-on-year in June, up from 4.4% growth in May and versus expectations of a 4.7% increase. Meanwhile, fixed asset investment declined 3.1% in the first half of the year from the same period a year ago, but this was ahead of expectations for a 3.3% fall.

Retail sales were a weak spot, declining 1.8% on the year in June, which was an improvement on the 2.8% fall see in May but well below expectations for 0.3% growth.

Miguel Chanco, senior Asia economist at Pantheon Macroeconomics, said: "Overall, the authorities’ decision to print a stronger-than-expected headline GDP result for Q2, which is probably well above what happened in reality, signals that they no longer have the appetite to ease fiscal and monetary policy further.

"Quarterly GDP growth should soften markedly in the second half of the year, following the post-lockdown bounce in Q2, as overstretched factories take a breather and rely on inventories built-up to meet any improvement in external demand, and as household spending starts to plateau below pre-Covid levels."