That was sharply lower than the 4.8% increase it registered in the previous quarter and far below the 1% growth estimated by economists in a Reuters poll. On a quarterly basis, GDP shrank 2.6%.
For the first half of this year, the economy expanded 2.5%, way below the 5.5% annual target set by the government. Beijing admitted Friday that reaching its GDP goals this year would be hard.
“There are challenges to achieve our expected economic growth target for the whole year,” said Fu Linghui, a spokesperson for the NBS, at a press conference in Beijing. But he expected the economy to rebound in the second half.
In the press conference on Friday, Fu said that the economy has taken an “unexpected, severe” hit from domestic and external factors.
The poor performance in the second quarter “reflected the significant shocks from the Omicron outbreak and corresponding stringent measures adopted in major cities,” said Chaoping Zhu, Shanghai-based global market strategist for JP Morgan Asset Management.
But the property sector may still pose a downside risk to growth, Zhu said.
Larry Hu, chief China economist for Macquarie Group, said latest data imply that GDP growth has to accelerate to more than 7% in the second half to deliver annual growth of 5% for the whole year.
“It is impossible without a significant escalation of policy stimulus from the current level,” he said.
Property slump drags
There were some bright spots in Friday’s economic data.
But the vast real estate sector remains a major drag.
Property investment dropped 9.4% in June from a year ago, after falling 7.8% in May, according to Macquarie Capital calculations based on government data. Property sales by floor areas decreased 18% last month, following a 32% plunge in May.
“Plunging sales means that developers are facing a liquidity crunch,” Hu said.
“The property woe is causing rising social instability, evidenced by the recent mortgage boycott,” he added.
Over the last few days, desperate homebuyers across dozens of cities have refused to pay mortgages on unfinished homes. The payment boycott comes as a growing number of projects have been delayed or stalled by a cash crunch that saw giant developer Evergrande default on its debt last year and several other companies seek protection from creditors.
Zhu from JP Morgan Asset management said that the increasing number of unfinished homes pose a big risk to banks’ financial health.
“Decisive and effective regulatory measures must be taken to prevent the mortgage boycott from developing into a systemic risk,” he said.