Many international analysts, commentators and media outlets are pouring over the latest GDP data from China which appears to have caught everyone by surprise (on the upside). According to CNBC “The country’s GDP growth exceeded expectations, expanding 3.2% in the April to June this year compared to one year ago. Economists polled by Reuters predicted a 2.5% expansion. The second quarter GDP numbers also represented a bounce back from the first quarter’s 6.8% contraction on-year — the country’s first GDP decline since at least 1992, when official quarterly records started”. See chart below.
Of particular note is consumer sentiment which “remains relatively robust but uncertainty from the coronavirus pandemic still lingers, according to Tai Hui, Asia chief market strategist at JPMorgan Asset Management. China may have missed analysts’ expectations in June’s retail sales numbers, but Chinese consumers ‘are still in reasonably good shape’. A ‘key issue’ remains over whether Chinese citizens are ‘feeling more comfortable’ to travel domestically again, Hui said, pointing to increased chatter surrounding topics such as summer holiday bookings for Chinese tourists domestically. ‘We’re gonna see a little bit more signs of recovery in the consumer sector in the third quarter,’ particularly when some of the worst hit sectors and services ‘come back online.’”
With all the chatter around the world about “decoupling” and “diversification”, domestic consumer sentiment in China will be critical to local, as well as global, economic growth and we’ll be watching for signs of fiscal stimulus leading to an increase in retail spending and consumer confidence. Domestic consumption in China was increasing rapidly before the Covid crisis, and will be a major factor in pulling them out of it.