Morning Market Brief: Tuesday, July 18, 2023

China’s growth remains relatively muted?

China’s gross domestic product (GDP) expanded over the second quarter of 2023. While the expansion was a positive for the world’s second-largest economy, digging deeper into the results shows that economic activity remains relatively muted. China’s economy has been hindered in 2023 by lockdown restrictions, waning global demand and ongoing challenges in its domestic property market.?

• China’s economy expanded by 6.3% in the second quarter of 2023 compared to the same period last year. However, the relatively strong growth rate was inflated in response to the low base quarter in 2022 when several cities across China were facing strict lockdown restrictions, slowing economic activity considerably.
• Comparing quarter-over-quarter results, China’s GDP expanded by 0.8% in the second quarter, softening from the 2.2% pace of growth in the first quarter. Weighing on growth over the second quarter was a still weak property market and a drop in exports, suggesting global demand might be waning.
• Domestic demand is also relatively weak. Retail sales rose by 3.1% year-over-year in June, which was the slowest pace of annual growth since dropping in December 2022. Industrial production advanced at an annual rate of 4.4% in June, faster than in May.
• The government’s target of 5% growth in 2023 appears to be at risk. China’s central bank, the People’s Bank of China, recently reduced interest rates looking to spur economic growth. Expectations are heightening the government could step forward with even more stimulus measures.

The results in China show the relatively uneven economic growth worldwide. While some economies might be growing, others are slowing or even contracting. Canada’s economy proved relatively resilient in the first quarter of 2023 but there were some pockets of weakness. Despite China’s weak economic growth, there are plenty of attractive companies in Chinese equity markets that are poised to grow alongside the economy.

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