Chinese economy in 2Q19 registers slowest growth rate in 27 years (Business Brief No.3808)

           China's economic growth in 2Q19 grew at 6.2 percent, the slowest growth rate in 27 years and down from 6.4 percent in 1Q19. Consequently, China's gross domestic product in 1H19 rose only 6.3 percent. The slump is a result of a fall in the global and domestic demands. Moreover, the prolonged trade war between the US and China has increased the downward pressure on the Chinese economy. China's exports shrank 1 percent YoY in 2Q19 versus a growth of 1.3 percent YOY in 1Q19. The drop in Chinese exports has taken a toll on China's industrial sector. China's Caixin/Markit manufacturing Purchasing Managers' Index for June declined to 49.4. The reading below 50 signals contraction in China's manufacturing activity.  Moreover, China experienced weaker domestic demand as imports continued to drop to minus growth of 4.1 percent in 2Q19, even though the Chinese government is trying to use various measures to stimulate the economy such as cuts in value added and import taxes and an increase in the government spending budget in infrastructure projects to over 2 trillion Yuan (USD297 billion). However, China's economy is still losing steam. This shows that these measures may not be enough to boost the economy, and they may only help cushion the slump.

           ​For the 2019 outlook, the Chinese economy is expected to encounter headwinds as the demands at home and abroad are faltering in the face of mounting trade dispute. KResearch expects China's economy to grow 6.2 percent (versus the forecast range of between 6.0 and 6.4 percent). KResearch posits that the Chinese economy is likely to experience more negative risks during the remainder of this year. If Beijing fails to effectively and sufficiently ramp up support for the economy, China's economic expansion may manage to reach only the lower end of the forecasts at 6.0 percent. Nonetheless, KResearch views that China's GDP growth this year is unlikely to slip below the lower end of the forecasts of 6.0 percent because the Chinese government should be able to effectively use economic measures to maintain growth this year.