Economic growth in China was surprisingly weak in the second quarter, indicating that the country’s recovery from Covid-19 lockdowns is losing momentum.
- Gross domestic product (GDP) increased by only 0.8% in the second quarter, compared to a 2.2% expansion in the first three months of the year.
- Retail sales and exports were the key factors dragging down growth.
China’s Economic Outlook and its Impact on Stocks
The recent figures present both challenges and opportunities for Chinese stocks. On one hand, they reflect the struggle of the world’s second largest economy. However, on the other hand, this situation puts pressure on the government to implement measures for economic stimulation and get the country back on track.
As a result of this news, the Hang Seng Index traded 0.3% higher on Monday. While Baidu (BIDU) experienced a slight decline of 0.3% in Hong Kong, retailer Alibaba (BABA) witnessed a 0.2% increase, and JD.com (JD) slipped by 0.1%. Meanwhile, Meituan (MPNGY) fell by 1.6%.
Implications on Energy Demand and Oil Prices
China’s sluggish economic expansion is also impacting expectations for energy demand. Consequently, Brent crude, which serves as the international oil standard, saw a decline of 1% and is now priced at $79 per barrel. West Texas Intermediate, the benchmark for the United States, slipped by 1.1%, reaching $74.57 a barrel.
Key Concerns for Investors: Government Response and Potential Stimulus
Investors are left questioning how China’s government will respond to these economic challenges. So far, the government has been reluctant to adopt large-scale stimulus measures.
- The absence of significant inflation in the country offers room for the central bank to consider cutting interest rates.
- Alternatively, the government could explore more direct approaches, such as implementing handouts to low-income households, tax cuts, or increased spending on social programs. These measures aim to stimulate consumption and investment.