China's economy grows 5.2% on trade war truce
The figures offer a rare bit of good news for the country's leadership as it fights a multi-front battle to kickstart growth - a challenge made all the more difficult by Donald Trump's tariff war.
But the knock-on effects of the trade turmoil abroad and persistent sluggish consumption mean the economy could slump in the second half of year, analysts warned.
The US president has imposed tolls on China and most other major trading partners since returning to office in January, threatening Beijing's exports just as it becomes more reliant on them to stimulate economic activity.
The two superpowers have sought to de-escalate their row after reaching a framework for a deal at talks in London last month, but observers warn of lingering uncertainty.
Beijing's National Bureau of Statistics (NBS) said today that the Chinese economy grew 5.2% in April-June, matching a prediction by an AFP survey of analysts and topping an official growth goal for the year set by the government.
But it marked a slowdown from the 5.4% seen in the first quarter, which was boosted by exporters rushing to shift goods ahead of swingeing US tariffs kicking in.
"The national economy withstood pressure and made steady improvement despite challenges," NBS deputy director Sheng Laiyun told a news conference.
"Production and demand grew steadily, employment was generally stable, household income continued to increase, new growth drivers witnessed robust development, and high-quality development made new strides," he said.
"The figures probably still overstate the strength of growth," Zichun Huang, China Economist at Capital Economics, said in a note.
"With exports set to slow and the tailwind from fiscal support on course to fade, growth is likely to slow further during the second half of this year," Huang added.
Chinese retail sales rose 4.8% year-on-year, below a forecast in a Bloomberg survey of economists, suggesting efforts to kickstart consumption have fallen flat.
The weak readings come even as Beijing tries to shift towards a growth model propelled more by domestic demand than the traditional key drivers of infrastructure investment, manufacturing and exports.
Factory output meanwhile gained 6.8%, higher than the estimate - reflecting continued high demand for Chinese exports that has boosted growth.
More deflation
But analysts warn that strong exports could be driving deflationary pressures and further dampening already sluggish consumer demand.
"Recent efforts to boost spending, such as the broadening of the consumer goods trade-in scheme earlier this year, did temporarily lift retail sales," said Sarah Tan, an economist at Moody's Analytics.
"However, this support proved unsustainable, with funding reportedly drying up in several provinces. The scheme's limitations highlight the need for policymakers to address the deeper structural challenges behind consumer caution," she added.
Data last week showed consumer prices edged up in June, barely snapping a four-month deflationary dip, but factory gate prices dropped at their fastest clip in nearly two years.
"The economy posted a solid first half, supported by resilient exports, though this momentum is contributing to deepening deflationary trends," Louise Loo, Head of Asia Economics at Oxford Economics, said in a note.
"The cost of strong exports is more deflation," she said.
Disagreements also persist between Beijing and Washington, despite the framework agreement reached last month.
Trump upped the ante yesterday, warning Russia's trading partners that he will impose "very severe" tariffs reaching 100% if Moscow fails to end its war on Ukraine within 50 days.
Western nations have repeatedly urged China - a key commercial ally of Russia - to wield its influence and get President Vladimir Putin to stop his three-year-old war with Ukraine.
"The economic outlook for the rest of the year remains challenging," Capital Economics' Huang said.
"With tariffs set to remain high, fiscal ammunition being depleted and structural headwinds persisting, growth is likely to slow further over the second half," she said.
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