China's Economic Slump Sparks Concern: What's Next?

China's economy grew at a slower rate than expected in the second quarter of 2024, primarily due to a persistent property crisis and job insecurity. The growth slowdown has led to expectations that Beijing may need to implement more stimulus measures to boost the economy. The government is aiming for a 5% growth rate, but analysts remain skeptical about its achievability.

China's economy grew at a slower rate than expected in the second quarter, with a persistent property downturn and job insecurity undermining a fragile recovery. Official data showed a 4.7% growth in April-June, the slowest since early 2023 and below the 5.1% forecast in a Reuters poll.

Retail sales growth hit an 18-month low as deflationary pressures forced businesses to reduce prices. Lynn Song, chief economist for Greater China at ING, highlighted the challenges of hitting the 5% growth target.

The property crisis deepened in June as new home prices fell at their fastest pace in nine years, affecting consumer confidence. Analysts expect the upcoming economic leadership meeting in Beijing to focus on debt reduction and boosting confidence, though balancing the two will be challenging.

Authorities have boosted infrastructure investment and high-tech manufacturing to counter weak domestic demand. However, China's yuan and stocks fell following disappointing data. The economy's uneven growth has led to increased deflationary risks, exacerbated by rising trade tensions.

Retail sales rose just 2.0% year-on-year, the slowest growth since December 2022. Analysts expect China's central bank to cut the one-year loan prime rate and banks' reserve requirement ratio in the third quarter. Additional property-supporting measures are also anticipated after the Politburo meeting in late July.

Authorities have taken steps to shore up the property market, including allowing state-owned enterprises to buy unsold completed homes and setting up a 300 billion yuan relending facility for affordable housing. However, major policy changes are unlikely, and China may struggle to meet its 5% growth target.

(With inputs from agencies.)