Q2 GDP data badly disappoints

China’s Q2 econ data was bleak.

Per data released by the stats bureau (NBS) on Monday:

• Real GDP grew 4.7% y/y in Q2, down from 5.3% in Q1
• On a seasonally adjusted quarter-on-quarter basis, GDP grew a shoddy 0.7%, the slowest q/q growth rate since zero-COVID ended in late 2022

We’re not just concerned about sluggish growth, but also low-quality growth.

• China’s supply side comfortably outstripped domestic demand, with industrial value-added growing 6.0% y/y so far this year, while retail sales rose just 3.7%.
• Meanwhile, the NBS consumer confidence index has fallen to its lowest level in 10 months.
• And the contribution of final consumption to GDP growth in Q2 – including government and private spending – fell from the previous quarter.

Weak demand means economy-wide prices are falling, hammering GDP growth in nominal terms.

• Nominal GDP – which incorporates price effects – only grew 3.97% y/y in Q2.
• This is the fifth consecutive quarter that nominal growth has remained below real growth.
• (Humble brag: we called this last week.)

The NBS doesn’t publish data for quarter-on-quarter nominal growth – but given the GDP deflator was negative, it’s likely that q/q nominal growth was flat.

Let that sink in: Between Q1 and Q2, the economy likely didn’t grow in nominal terms.

Get smart: It’s clear long-term weakness in consumption, consumer confidence, and the property sector will not be resolved without a bigger, more comprehensive policy support package.

• All eyes on the Third Plenum.